Society has trained many people to believe bankruptcy is the end of an individual’s financial world; and this legal debt option is only designed for a select few. However, it is estimated that 1.2 to 1.5 million people file for bankruptcy each year.
Many people also have the perception that consumer bankruptcy is only for people who live in fiscal irresponsibility. However, this is certainly not the case. Individuals file for bankruptcy for a number of reasons, often due to the loss of employment, divorce, soaring medical expenses or the death of a family member. Irresponsibility and inconsistency is a factor in some bankruptcy filings, but this debt option is more likely to fall upon the financially responsible.
If bankruptcy is a consumer’s last monetary hope, it's important to understand the two most common filing chapters, and also what to expect.
Chapter 13 Bankruptcy
In this form of consumer bankruptcy, the individual pays a trustee who then redirects money to the owed creditors. An individual who brings in a very high income will most likely file for the chapter 13 debt option. This type of bankruptcy filing may take between three and five years to complete.
Chapter 13 bankruptcy will remain on a consumer’s credit report for seven years from the actual bankruptcy completion date. Meaning, once an individual is completely finished with his or her proceedings, that person’s credit report and credit score will be "marked" beginning at that moment.
Chapter 7 Bankruptcy
In this debt scenario a consumer can possibly leave court without owing a single penny. Chapter 7 remains on an individual’s credit file for ten years from the completion date. As with chapter 13, an individual’s credit score and credit history will be hindered, (this time for ten years) from the original bankruptcy conclusion date. Middle to low income individuals typically file for chapter 7, thus making it one of the most common forms of consumer bankruptcy filings.
Consumer Bankruptcy, Financial Damages
By all accounts, consumer bankruptcy should always be an individual’s last option and resort. Though it's possible to fully recover from chapter 13 or chapter 7 bankruptcy, the climb is rather steep. Bankruptcy is very expensive and is filled with long term costs, severe damage to an individual’s credit, and not to mention future financial difficulties.
If the need for this legal debt option is so severe that all other avenues will not suffice, then consumer bankruptcy is an option. However, an individual must know and understand that immediate financial and credit recovery is simply not possible.
Source
- Credit.com
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