Bankruptcy can be a way out for many families who find themselves overwhelmed with too much debt. It is a big decision with long-term consequences, and you should never be entered into lightly. Nevertheless, it does provide relief for many people who need drastic assistance in debt relief.
Here are four common reasons people file for bankruptcy.
1. Avoiding foreclosure
Chapter 7 bankruptcy can wipe out many consumer debts, but it doesn’t guarantee that you’ll get to keep your assets. For example, if you owe credit card debt, chapter 7 can protect your home from creditors. Credit cards are unsecured debt, which means that there is no collateral backing up the loan.
However, if you are behind on your mortgage payments and are facing foreclosure, you may need to file Chapter 13 bankruptcy and establish a payment plan so you can catch up on your mortgage payments. This is because Chapter 7 does not eliminate your obligation to the lien holders such as the mortgage company or bank.
2. Prevent repossession of your vehicle
Just like your house payments have to be made even if you file for bankruptcy, your car loan has to be paid off if you intend to keep the vehicle. You can use Chapter 13 bankruptcy to form a repayment plan for your debts, usually over the next three to five years.
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