The factors that lead to a bankruptcy filing are never black-and-white. Luckily, if you do have to file, the options for individuals are straightforward and easy to understand. For many people in this situation, a Chapter 13 filing may be the best option.
“What is Chapter 13 bankruptcy?” A Chapter 13 filing is one of the two main options for individuals filing for bankruptcy. Under this filing, the debtor is enrolled in a repayment plan to clear up their outstanding debts, and granted an “automatic stay” during the scheduled repayment plan period. The “automatic stay” goes into effect immediately upon filing, and provides protection from further collection attempts from creditors and collection agencies.
“What is Chapter 13 bankruptcy’s effect on my financial future?” Since Chapter 13 is not a “clean slate” discharge of your debt, but rather a structured repayment plan for anyone with a steady income, the impact on your financial future (i.e. applying for car loans, mortgages, etc.) is less than it would be under other filings. Your adherence to the repayment plan is crucial, as is your enrollment in and completion of mandatory credit counseling, to further decrease the likelihood of finding yourself in a similar situation later on. You will have to disclose your bankruptcy filings on any future applications for loans or credit.
“What are the alternatives?” The other option for individual filing is Chapter 7 bankruptcy. Chapter 7 also grants an immediate stay on collection attempts while the filing is considered. However, rather than enrolling in a repayment plan, a Chapter 7 filing results in the liquidation of all non-exempt assets in order to pay off your creditors. (Exemption rules and allowances vary from state to state.) Anyone filing for Chapter 7 must meet certain financial requirements which are more stringent than requirements for Chapter 13.
Whatever the factors that lead to bankruptcy, never forget that there are solutions available. If filing Chapter 13 or Chapter 7 bankruptcy is your only option, it pays to know as much as you can before deciding which path to take.