There are many ways to handle your debt, but many of them can cost you more in the long run. Companies that offer for-profit services like debt settlement or consolidation loans can give someone temporary relief but won’t resolve the debt that caused the issue to begin with.
Bankruptcy is unique among debt solutions in that it provides a discharge of your debt. You no longer have to make payments on the debt you successfully discharge, and companies no longer have the legal right to try to collect on those debts.
Determining how many of your current debts will actually qualify for a discharge can help you decide whether or not filing personal bankruptcy is the right solution for your financial situation.
Bankruptcy primarily affects unsecured debts
An unsecured debt does not have property held as collateral. A credit card is a form of unsecured debt. A mortgage that uses the home as collateral for the loan is a secured debt. Medical debts and utility balances sent to collections are examples of other unsecured debts that could be worth thousands of dollars.
Provided that the courts approve your discharge, most of your unsecured debts will be eligible. You have to list them and notify the creditor of your filing in order to discharge the debt. However, not every debt you owe will wind up discharged. Certain kinds of unsecured debt, like student loans and child support debt, may not be eligible for discharge.
What happens to secured debts in a bankruptcy?
Although bankruptcy doesn’t discharge secured debts, it can help you deal with them. Especially if you file Chapter 13, bankruptcy could help you negotiate with your creditors for better terms. Lower interest rates or moving a past-due balance to the end of the loan instead of paying it now could both be terms you seek when renegotiating with a lender.
You may have the option of relinquishing the collateral property and ending your obligation to keep paying on certain secured debts. Other times, you can negotiate and potentially reaffirm the debt as part of your bankruptcy proceedings. Determining what debt you can discharge can help you decide if bankruptcy would be useful for you.