Medical expenses and unemployment can result in mountains of debt and little recourse for Virginia residents. If you use credit cards for daily necessities and are struggling with minimum payments that don’t lower your balance, it may be time to change your strategy. We often help clients determine whether bankruptcy is the right decision and help them get started in reclaiming their financial health.
According to Experian, the two primary types of consumer bankruptcy are Chapter 7 and Chapter 13. Although both help you clear debts, the process can be very different.
Chapter 7
This bankruptcy option, known as liquidation bankruptcy, discharges most debt in four to six months. If you pass the means test, proving you are eligible for this process, a trustee assigned by the court inventories your assets and liabilities. You can keep exempt property. The trustee liquidates the nonexempt property and settles with creditors. Sometimes at a fraction of the total amount due.
Chapter 13
Also known as the wage earner plan, this process is common for individuals who have a regular income. Under this plan, you propose a plan to repay or settle your debts. Depending on your income, the payment plan may take place over three or five years. Payments go to the trustee, who distributes them among creditors accordingly. At the end of the payment plan, unpaid debt balances typically get discharged (forgiven).
Filing for bankruptcy is a last resort. It affects your credit and may prevent you from getting low-interest loans for cars or mortgages. However, this complex process also provides debt relief, giving you a way to start over and rebuild credit quickly.
