Where does the debt go?
Believe it or not, but not all bankruptcies are created equal. With Chapter 7 bankruptcy, your debt gets wiped completely, and with Chapter 13, the court will help you create a 3 to 5 year payment plan to pay back the people you owe money. Here’s a more detailed look at what happens to your debt once you’ve successfully filed for bankruptcy.
Chapter 7 Bankruptcy
Your debt gets wiped clean once you file Chapter 7 bankruptcy, and your creditors will no longer come after you for money. Once you’ve filed for Chapter 7 bankruptcy, the court (the trustee) will sell (liquidate) non-exempt property to pay off your creditors, leaving you debt-free. But don’t worry, you can still keep your wages, home, and certain kinds of property. A qualified attorney can help you reap the benefits of getting rid of your debt by declaring Chapter 7 while keeping your property. However, declaring bankruptcy does not get rid of certain kinds of debts, so see our list of the debts that Chapter 7 nullifies before filing to ensure filing for bankruptcy makes the most sense for your unique scenario.
Chapter 13 Bankruptcy
By filing for Chapter 13, the court will ensure you can pay back other debts to the people you owe money (your creditors) at a pace that makes sense for you based on your salary and the overall money you make. You will get your debt re-organized and you’ll have to pay it back over a 3-5 year period. But don’t worry, the court will ensure the pace makes the most sense for you. See our article on Chapter 13 bankruptcy for more information.
In either case, filing for Chapter 7 or 13 Bankruptcy plays a crucial step in proactively changing your financial situation.