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Overwhelming debt? Address it with bankruptcy

As you age, one of the most frightening things is the idea of losing what you've gathered over the years. If you've lost a job or had a significant medical injury, then you may be worried about losing your assets as a result of your financial troubles.

The positive news is that bankruptcy might be a good choice for your situation. Both Chapter 7 and Chapter 13 are excellent options for people who face losing their home or who have outstanding medical debts. Here's a little more on each type of bankruptcy and what you should consider.

Chapter 7 bankruptcy

Chapter 7 bankruptcy is also called a liquidation bankruptcy. Liquidation refers to the fact that you'll be expected to sell certain nonexempt items to make up for some of the debts you've accrued. Any money made from the sale of those items goes toward paying back creditors until that option is exhausted. Then, you'll emerge from the bankruptcy with a clean slate.

The good thing about Chapter 7 bankruptcy is that it's not designed to force you to sell everything. Instead, you'll sell certain nonexempt items, like an extra vehicle or secondary residences. Usually, there are exemptions to protect your home, vehicle, some clothing and other assets you've collected.

Chapter 13 bankruptcy

In Chapter 13 bankruptcy, you use a repayment plan to cover the cost of your debts. You'll submit all your debts to the court, and creditors will examine your plan for repayment. For example, if you're paying $1,400 in debt every month now, you may hope to pay $700 or less, because that's the ability you have based on your means.

If they're happy with the plan, the creditors and court can approve it. Then, you'll pay the agreed upon amount every month for three to five years. Once you complete the program, you'll emerge from bankruptcy and the remaining debts included in the bankruptcy will be discharged.

Not everyone understands or trusts bankruptcy, and that's to be expected due to the myths and negative press that bankruptcies get. However, if you're struggling with your finances or have overwhelming debt, a bankruptcy could be the right option for helping you get back to a place of financial security, where you can move forward without debt.

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