Declaring bankruptcy has a bad reputation, but it can actually be a helpful way to get out of debt. While declaring bankruptcy may not mean you do not have to pay your debts, it can help you greatly reduce some of your debt.
If you file for Bankruptcy Chapter 7, the court will request that you sell some of your assets to pay a portion of your debt. The courts call this liquidation and will decide which items must be put up for sale.
These assets can include:
- Second homes or vacation homes.
- Stocks and bonds.
- Cash and savings.
- Property with equity, such as a paid-off boat.
Some assets are exempt from court-mandated liquidation, for instance, your home, clothing, household goods, and a vehicle.
What you can keep will depend on local laws and the value of the items.
Once creditors receive the profit from selling qualifying assets, they may excuse or eliminate the remaining debt.
If you file for Bankruptcy Chapter 13, the government will create a payment plan based on your income. You will be able to keep all of your property as long as you follow the payment plan.
This plan is available if you have a stable income. You may, however, sell your assets if you want to reduce the amount of your monthly payment.
Since you are paying your creditors, Chapter 13 does not hurt your credit score as much as Chapter 7. However, picking a debt relief program can prevent negative marks from appearing on your credit history.