Many people struggle to pay off credit card debt and, as a result, fail to pay off late fees and interest, all of which can make it even harder. Some people don’t intentionally take on debt, but, instead, suffer from a health condition or accident that results in tons of medical debt. And, when it comes to a loan or mortgage, debtors may unexpectedly lose their income or build up other forms of debt
People can, in response to their overwhelming debt, seek out a bankruptcy claim, which can wipe away some or all of their debt. However, as you may know, bankruptcy does have its drawbacks and does have a price of its own. In other words, what many people fear is that, by filing for bankruptcy, they’ll lose everything they own.
Why is that? Here’s what you should know:
Exempt assets during a Chapter 7 bankruptcy
Chapter 7 bankruptcy is also called liquidation bankruptcy because the trustee may have to sell assets to pay off some debt. What this sounds like to many people is that they could lose everything from their car and home to the clothes on their back, however, that’s generally not true.
Many assets are exempt from liquidation during a Chapter 7 bankruptcy. For example, a single home, used car or tools of a trade may be kept by the debtor. While an art collection, summer home or luxury car may face liquidation. Meaning that you won’t have to fear losing your entire livelihood by filing for bankruptcy.
Rebuilding your credit after bankruptcy
Alternatively, you could file for Chapter 13 bankruptcy. Chapter 13 bankruptcy is a refinance plan that redistributes your debt if you have disposable income to pay it off. This way you won’t have to fear liquidating your assets.
However, it should be known that by filing for bankruptcy your credit score will take a hit. However, if you are already delinquent the bankruptcy may actually help improve your score. Because of what a credit score stands for – how much a lender can trust you to pay off your debt after making large purchases – it may be harder for you to take on loans, credit cards or a mortgage in the future – but not impossible. Seek legal help when filing for bankruptcy. Contact an attorney to discover whether the process may be helpful for you.