Bankruptcy is a process intended to help seriously struggling debtors obtain financial relief. Although the rules of bankruptcy are relatively straightforward in most cases, there is a fair amount of misunderstanding out there when it comes to understanding the process and the impact it will have on a debtor, both positive and negative.
One of the common misunderstandings of bankruptcy is that bankruptcy means the debtor will lose everything. The truth is that there is no form of bankruptcy in which a debtor will lose all of his or her assets. The process does work differently depending on the form of bankruptcy for which the debtor files, though.
In Chapter 13 bankruptcy, a debtor doesn’t necessarily have to lose any assets. Chapter 13 works by allowing a debtor to come up with a repayment plan under the supervision of the court. Repayment plans can last between three and five years, during which time payments are made to the court. After the repayment plan is complete, the debtor may be able to have some debt discharged.
If the debtor files for Chapter 7 bankruptcy, there debtor’s losses will be greater than with a Chapter 13 filing. This is because Chapter 7 bankruptcy works by liquidating the debtor’s assets in order to pay off creditors. For this reason, debtors who don’t want to risk losing any of their own assets in bankruptcy should either file for Chapter 13 bankruptcy or seek some other form of debt relief.
In our next post, we’ll pick back up on this topic.