Debt is a word that all Americans over a certain age are familiar with. It comes in many different forms, including student loans, credit cards and medical expenses, to name a few. Bankruptcy is also a familiar term to many in Maryland and across the country, but some are less familiar with its definition when compared to the word debt.
The current amount of outstanding student loan debt nationally is upwards of $1.3 trillion, and if one adds unexpected medical debt and loss of a job on top of that, the expected stress would be overwhelming. This kind of stress is what can lead people to explore the option of bankruptcy. There are three well-known categories -- Chapter 7, Chapter 11 and Chapter 13. Chapter 11 is more commonly used for businesses and allows them to restructure debt, while Chapter 13 offers similar relief for consumers. Chapter 7, known as a liquidation bankruptcy, is available to both individuals and businesses.
Chapter 7 requires that nonexempt assets be liquidated and paid to creditors. This can result in the discharge of unsecured debt. While it can have a negative impact on a person's credit score, that can be remedied over the course of a few years. However, credit counseling and debt education courses must be taken before one is allowed to file.
Chapter 13 is for individuals whose income is too high to allow them to file under Chapter 7. Typically, it does not require them to liquidate assets. Instead, debts will be reduced and restructured according to a court-approved plan. Rather than liquidating assets, disposable income is used to pay down the debt. The filer is also prohibited from taking on any new debt until the bankruptcy process is successfully completed, which can take up to five years.
It's helpful to understand the short and long-term implications of filing for bankruptcy before taking this step. An experienced bankruptcy attorney in Maryland can examine a person's financial situation and offer advice about the best path to pursue. With the right help, consumers can responsibly confront nagging debt and achieve financial stability once again.