Bankruptcy is a complicated situation. Its purpose is to relieve at least most of a person’s debt so that s/he can have a do-over, a chance to start again without the burden of insurmountable debt. However, it is disastrous to your credit ratings, so it should never be considered lightly.
There are two basic types of personal bankruptcy, Chapter 7 and Chapter 13. Chapter 7 is for those with a lot of debt but not much in assets. It is also known as liquidation. You give up your assets in exchange for relief from your debts. Those with a lot of debt but little or no income and not much in assets usually file for Chapter 7. It stays on your credit scores for ten years.
Chapter 13 is also known as debt adjustment. With this, any foreclosures are stopped for a little while so that you can work out and begin to implement a plan to repay as much of the debt as possible. This plan usually means repaying the debt within a three to five year time frame. It stays on your credit scores for seven years.
Recent laws have made it harder to file for bankruptcy. For those with job loss or major medical bills because of an illness, it unfortunately can sometimes be the only option. However, explore all options before even considering bankruptcy since it basically ruins your credit rating.
