It can be hard to imagine any benefits when first considering declaring bankruptcy. In fact, there are several. Understanding the positives of bankruptcy can ease your mind and make the process less stressful.
Can Bankruptcy Clear Debt?
Bankruptcy can clear any eligible unsecured debt. “Unsecured” means the debt isn’t backed by collateral that the lender can take possession of instead of money for the debt, such as a house or car. Typical forms of unsecured debt include credit cards and medical bills.
Two kinds of bankruptcy handle unsecured debt in different ways. Chapter 7 bankruptcy clears all the unsecured debt. There are income restrictions to apply for chapter 7. In some cases, the bankrupt person’s property may be sold to pay off the debts. There are types of property that are exempt from that.
Chapter 13 bankruptcy is a repayment plan with a goal to have you pay off as much as possible of what is owed. This could mean all disposable income (income after necessities such as housing, food, and medical expenses) would be put toward the debt for between three and five years.
Does Bankruptcy Prevent Foreclosure and Other Dire Measures?
Bankruptcy can put a stay on eviction and foreclosure proceedings, but it may only be temporary, depending on the type of bankruptcy. If eviction proceedings have already begun, they can be paused but will resume once the stay is lifted.
For filing chapter 7, homes can be foreclosed upon if the owner can’t overcome the debt through bankruptcy. Chapter 13 bankruptcy is designed to try and help people keep their homes as part of their repayment plans. It can also prevent utilities from being turned off (such as electricity and water) and stop wage garnishment (where funds are taken from paychecks to pay back the debts owed).
Is Bankruptcy a Step Toward Rebuilding Credit Ratings?
Filing bankruptcy can be the first step toward restoring good credit ratings. Not at first—a bankruptcy will initially cause a credit score to decline. The steep decline depends on the credit score before the bankruptcy, with higher scores taking the biggest dive.
Since credit scores are used for things like car loans, renting apartments, or determining interest rates on financing, a poor credit score can be frustrating. It’s important to understand that another thing that hurts a person’s credit scores is continuing to increase the amount of debt. Once the debt has been brought under control and no new debt is accrued, there are opportunities to earn better credit scores.
Let Us Advise You
If you or someone you know needs help with bankruptcy, call us at 708-575-1500 to work with experienced foreclosure and bankruptcy lawyers. Bankruptcy law is complex and challenging to work on without this kind of experience. Let us help you through the process as smoothly as possible.