According to recent statistics, the average American held more than $90,000 in consumer debt in 2018. The average balances of most major types of debt, all except for personal loans and home equity lines of credit, have grown substantially over the past decade. Residents of Arkansas may be able to use bankruptcy to get relief from mountains of debt.
The basics of bankruptcy
Bankruptcy is a type of consumer protection that helps people seek relief from creditors, but the U.S. government maintains strict regulations on consumer bankruptcy. Currently, the United States allows six different types of bankruptcy, also known as chapters. If you want relief from personal debts, you can file for Chapter 7, Chapter 11 or Chapter 13 bankruptcy. The vast majority of personal bankruptcy filings take the form of Chapter 7 and Chapter 13 bankruptcies.
The difference between Chapter 7 and Chapter 13
Under Chapter 13 bankruptcy, you reorganize your finances to repay creditors within three to five years. You can’t choose this option if you have less than $419,275 in unsecured debt or $1,257,850 in secured debt. Major factors to qualify for Chapter 13 bankruptcy include having a regular income stream and getting credit counseling within 180 days of filing.
Chapter 7 bankruptcy, which has no debt limits, involves liquidation of assets. With the court’s supervision, you’ll sell your assets to pay off creditors. You can eliminate most types of debt under Chapter 7 bankruptcy.
Bankruptcy isn’t always your only option
Depending on how you file, bankruptcies stay on your credit for 7 to 10 years. Due to the major impact of bankruptcy, you should consider debt management alternatives before filing. Visiting a credit counselor is a great way to explore your options. Since you’ll have to get counseled before filing under Chapter 13, you might as well consider it.
Personally working out repayment options with creditors is another strategy. Depending on your ability to negotiate, you could manage to pay off some debts for much less than you actually owe.
If you’re not sure about how to proceed, consider asking an experienced bankruptcy attorney for assistance. An attorney may help you understand your options and explain your rights to protection from creditors.