Borrowers may file for bankruptcy when they no longer have the funds to pay their debts. While this may come from taking out too many credit cards and not properly budgeting, it may also occur due to a sudden illness, becoming unemployed, or any other type of unexpected financial situation.
When an individual files for personal bankruptcy, they usually have two options. Each of these is different in how it treats the consumer and their debt:
- Chapter 7 bankruptcy requires consumers to liquidate at least some of their assets to pay back their debts. Which assets to liquidate depends on the person's finances, the state they live in, and other factors. There are many criteria a consumer must meet in order to file Chapter 7 bankruptcy, but the most important is their income or lack thereof.
- Chapter 13 bankruptcy, on the other hand, allows the consumer to retain their assets. However, they must create a plan that will pay off their debts within a period of three to five years. In order to file for Chapter 13, a consumer must have no more than $1,149,525 in secured debts and $383,175 in unsecured debts.
There are a number of other types of bankruptcy filings that some consumers may qualify for. Business owners who have accumulated a large amount of business debt may file for Chapter 11 bankruptcy, while farmers may qualify for Chapter 12.
Those considering filing for either type of bankruptcy also need to be aware that there is a filing fee and lawyer fees.
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