People file for bankruptcy for everything from a medical emergency or death to job loss and divorce. However, bankruptcy is not a solution to every form of debt. Before you consider filing, you should make sure you qualify.
There are several different types of bankruptcies, and each one has a different time frame. The most common types are Chapter 7 and Chapter 13.
Chapter 7 bankruptcy
Individuals filing for bankruptcy most often file for Chapter 7. This is usually the fastest and cheapest form. It may involve liquidating your assets, which may allow your trustee to pay off some of your debt. Unsecured debt usually goes away without payment, such as credit cards or medical bills. It takes approximately four to six months to complete a Chapter 7, but it stays on your credit report for ten years. You also cannot file again for eight years.
While there are some restrictions, this is a mostly straightforward process. One thing to be aware of is that Chapter 7 does involve a means test.
Chapter 13 bankruptcy
Unlike filing a Chapter 7, filing a Chapter 13 bankruptcy does not immediately forgive your debt. It somewhat reorganizes it so that you pay back all or some of your secured debt and some of your unsecured debt. It takes about 95 days from filing to repayment approval, but the repayment plan is three to five years. The court decides on a monthly payment plan, and you must stick to it carefully. It stays on your credit report for seven years, and you cannot file again for two years after.
The type of bankruptcy you need depends on several factors, including the amount of debt you have and your income. It is a significant life decision that you should enter carefully.