How Does Bankruptcy Work And Is It Right For Me?

Debt can get away from you quickly. Regardless of how you accumulated it, the constant collection calls, threatening letters, and sleepless nights ultimately take their toll. Running through options in your head, you’re beginning to wonder how bankruptcy works and if it might be the right move for you.

Let’s look through some of the main components of bankruptcy so you can determine if it’s an appropriate solution for your situation.

Note: Most information for this article was taken from the United States Courts.

What is Bankruptcy?

Bankruptcy is a federal legal process freeing people or businesses from unmanageable debt by either discharging the debt or creating a workable repayment plan.

Once you file for bankruptcy, your creditors are notified and must temporarily stop contacting you or proceeding with other collection or legal action. Once your debts are discharged, you are no longer responsible for them.

The U.S. Bankruptcy Code governs bankruptcy. For individuals, there are two types of bankruptcy: Chapter 7 and Chapter 13.

How Bankruptcy Works in Each Chapter

While both chapters provide debt relief, they do so in different ways.