Consumer bankruptcy is a legal proceeding in which an individual or a consumer who is unable to pay their outstanding debts can seek relief from some or all of their debts. There are two main types of consumer bankruptcies: Chapter 7 and Chapter 13.
In a Chapter 7 bankruptcy, the consumer’s non-exempt assets (if any exist) are liquidated by the bankruptcy trustee to repay creditors. In a Chapter 13 bankruptcy, the individual can keep their property, but they must pay some or all of their debt over a three to five-year repayment plan. One thing to note is that not everyone is eligible for these types of bankruptcies and they should be a last resort, as they can severely impact your credit.
1. How long does a bankruptcy stay on your credit report?
A bankruptcy can stay on your credit report for seven to ten years, depending on the type of bankruptcy. Chapter 7 bankruptcy stays for ten years and Chapter 13 bankruptcy for seven years.
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2. What is the difference between Chapter 7 and Chapter 13 consumer bankruptcy?
In a Chapter 7 bankruptcy, consumers must liquidate their non-exempt assets to repay their debts, while in Chapter 13, they can keep their property but must adhere to a repayment plan over three to five years.
3. Can you keep your home in a consumer bankruptcy?
In Chapter 7 bankruptcy, whether you can keep your home depends on if your home equity is exempt. On the other hand, in Chapter 13 bankruptcy, you usually can keep your home by making the mortgage payments under the repayment plan.
4. How can one secure their financial future after consumer bankruptcy?
Securing a financial future after bankruptcy can be done mostly by making and sticking to a budget, consistently paying bills on time, and committing to saving and investing wisely.
5. Are all debts discharged in a consumer bankruptcy?
No, not all debts can be discharged in a bankruptcy. Non-dischargeable debts include certain types of tax debts, most student loans, child support, alimony, and debts for injury or death caused by drunk driving.