Contrary to the common perception, bankruptcy is not a punishment or a failure. Rather, it is an opportunity for you to start fresh financially.
As a consumer, you typically have two choices for filing bankruptcy: Chapter 7 and Chapter 13. Each has its own eligibility requirements, but if you qualify for Chapter 13, it can offer some significant benefits.
1. Does not require you to liquidate assets
To liquidate assets is to sell them off to make money to pay off your debts. According to United States Courts, Chapter 13 bankruptcy does not require this. Instead, it reorganizes your debt so that you can pay it off gradually over a set repayment period, between three and five years.
2. Works like a consolidation loan
To consolidate debt is to collect all your outstanding balances into one account so that you only make one payment per month. This is also the way that Chapter 13 bankruptcy works. If you have enough outstanding debt that you are thinking about filing for bankruptcy, it has probably had a negative effect on your credit, meaning that you may not qualify for a loan. There are no credit requirements for filing for bankruptcy.
3. May prevent foreclosure on your home
Any time you file for bankruptcy, an automatic stay goes into effect on your account that stops debt collection efforts, including foreclosure on your home. However, the automatic stay is temporary, and foreclosure proceedings may continue once it expires.
With Chapter 13 bankruptcy, it may be possible to reorganize outstanding mortgage payments into your repayment plan. If you stick to your repayment plan and make new mortgage payments as they come due, you may be able to avoid foreclosure altogether by bringing your account current.