Filing for bankruptcy is a way for people in Connecticut to address their debts that they can no longer repay. However, the process is much more involved than simply filing and then waiting for debt to disappear. There are generally two types of personal bankruptcy that consumers can use — Chapter 7 and Chapter 13. Here are a few things that may help individuals better understand the process of personal bankruptcy.
To file for Chapter 7, a person must pass the means test, which assesses his or her debts, incomes and assets. If that individual passes the test it usually means that he or she does not earn enough to be able to repay the debts. Any qualifying debt can then be discharged, giving that person a fresh financial start. However, it also means that valuable assets like cars or jewelry may be sold to satisfy some of the creditors.
Chapter 13 does not result in the immediate discharge of all debts, and is for people who earn enough to repay some but not all of their debts. Instead of having to sell off assets to satisfy creditors, a person will commit to a repayment plan that should last anywhere from three to five years. At the end of the plan, any of the remaining qualifying debt is discharged.
It is important to acknowledge that filing for bankruptcy has a negative impact on a person’s credit score. However, delinquent payments, long-overdue bills and balances growing out of control because of interest rates also negatively impact credit scores. Individuals in Connecticut should consider how the benefits of personal bankruptcy may outweigh the perceived downsides, especially in regards to their own unique situations.