Persons struggling financially might look at bankruptcy as a potential solution to their troubles. While many might have a vague idea about what occurs in a California bankruptcy court, others may be unfamiliar with how the process works. A debtor could prescribe to fallacies about bankruptcy, leading to potential misunderstandings about Chapter 7 or 13.
Facts About Bankruptcy
Bankruptcy laws cover many different elements, and the average person would doubtfully know the law inside and out. Understanding the five following facts may open a debtor’s eyes to the proceedings:
- Trying to pay debts outside without filing for bankruptcy isn’t always possible or viable
- Not every debt faces liquidation
- Not all debts go away in bankruptcy
- Bankruptcy does not permanently ruin credit scores
- Not all bankruptcy filings result from irresponsibility
Learning more about these facts could be in a debtor’s best interest. A heavily indebted person might not want to file for bankruptcy, assuming they can pay the debts in time. However, interest payments on debts, collection actions, lawsuits, repossession, and financial stress could all loom. Worse, the debtor could go through enormous trouble and not pay the debt off.
Further bankruptcy considerations
Seeking clarification on bankruptcy laws and rules could work in a debtor’s favor. Chapter 7 involves liquidation bankruptcy; some don’t realize that specific debts could be exempt. Similarly, they may not realize they must pass a means test and that some debts, such as alimony, won’t face a discharge.
Also, bankruptcy only remains on a credit report for a specific number of years. Once the ten years for Chapter 7 and the seven years for Chapter 13 pass, bankruptcy falls off the credit score. Again, debtors may benefit from clarifying facts about bankruptcy when weighing their options.