When you have debt building up, the pressure to pay it off can be overwhelming. Collections agencies, lawsuits from creditors and threats of foreclosure can make you feel like you have no options but to pay as soon as possible.
While your tax return may help pay off some of your debt, filing for bankruptcy may be a better option because it can either dismiss some of what you owe or give you time to pay it back.
What filing for bankruptcy does
Filing for bankruptcy provides immediate relief from the pressure of debt. As soon as you file for Chapter 7 or Chapter 13 bankruptcy, an injunction stops collections agencies from calling and stops any lawsuits in progress. Filing for bankruptcy also puts a stop to any foreclosures. Filing for bankruptcy does not immediately erase all of your debt, but it gives you breathing room while you figure out how to recover.
Two types of bankruptcy
Whether you file for Chapter 7 and Chapter 13 depends on eligibility. To qualify for Chapter 7, you have to pass a means test to determine if you are able to repay your debt. In contrast, almost everyone can qualify for Chapter 13. Chapter 7 dismisses your debts, while Chapter 13 requires you to pay some of your debts back over three to five years, depending on your repayment plan.
While bankruptcy can discharge debts such as medical bills or credit card debt, you must repay certain types of debt regardless of bankruptcy. Bankruptcy will likely not affect student loans, taxes or child support.
