Bankruptcy is a method of discharging and/or reducing debts you are unable to pay. When you sign any type of money lending contract or financing contract, you likely signed an agreement to pay back your debt in a certain manner or accept responsibility for the penalties the creditor outlined in the contract. If you review an unpaid agreement between you and a creditor, it will likely include wording that indicates the creditor reserves the right to sue you for nonpayment of the debt.
The bankruptcy process halts legal actions against you by creditors and provides you with the opportunity to discharge the debt. This actually works in favor of the creditor in some cases by sparing them the expense of legal counsel during lengthy debt litigation. Chapter 7 Bankruptcy is the most common bankruptcy filing seen in the United States, and this procedure allows an individual to experience a truly fresh start when it comes to their debts.
Bankruptcy for individuals typically pertains to secured and unsecured debts. Secured debts pertain to possessions such as real estate and vehicles, or tangible assets. Unsecured debts include credit cards and other loans that may or may not have physical collateral behind them. A bankruptcy filing is a method of determining the best way to restructure, eliminate, or pay off different types of debts.
Chapter 13 Bankruptcy is a different kind of bankruptcy filing that allows debtors to maintain ownership of their secured property and renegotiate their repayment terms with creditors. This type of filing can be beneficial to those who just need a bit of flexibility to manage their debts more easily. This form of bankruptcy can also allow you to maintain ownership of property and assets that would otherwise not be exempt from seizure in Chapter 7 filing.