No person would ever want to be in a difficult financial situation.
Knowing the reasons why you got there is not as important as knowing how to get out of it.
There are many ways to get out of debt and in cases where you are in an extreme financial difficulty you might start asking "how does bankruptcy work?" Under the US law, there are three types of bankruptcy namely Chapter 7, Chapter 11 and Chapter 13.
The chapters of bankruptcy are indication of sections under US Law Code.
For individuals like you, you would need to study Chapter 7 and 13 because Chapter 11 is for business entities only.
You need to know your situation first before you can determine which of these two chapters are most suitable for your case.
How does bankruptcy work for Chapter 7? Before you can be eligible for this type, you will need to pass through a "means test".
If you pass, a trustee will take care of selling your properties so that the proceeds will be paid to your creditors.
The trustee will only sell properties that are not exempted in the liquidation.
This means it is possible you can keep some of your properties as long as they are excluded for liquidation.
In this type, you will be able to discharge all your debts and get protection from the court against any creditors' collection harassment on you.
If you do not pass for Chapter 7, then your next option is to file for Chapter 13.
How does bankruptcy work for Chapter 13? Well, it is different from Chapter 7 because it requires a repayment plan instead of having your properties sold.
The repayment plan is a reorganization of your debts which must be paid for within 5 years.
There are debts that can be discharged in Chapter 13 that cannot be discharged in Chapter 7.
Both types of bankruptcy should be able to give you a fresh start since it is an attempt to pay debts to your creditors at the same time protects you from any creditor harassment.
However, there is an unpleasant result that goes with it: you will have a black mark on your credit report that will last for up to ten years.
With such report, you will have no or little chance of getting a new loan, new properties or any new credit cards.
The credit report will show the date when you first filed and not when you are done paying.
So in essence, if you are really in a dire strait and filing is your only option, it would be better to file as soon as possible so you can finish up paying your debts and rebuild your credit sooner.
Now that you have the answers to the question " how does bankruptcy work?" you can choose which option best suits your current situation.
As you can see, it does have its advantages and disadvantages.
It may not have the perfect outcome but it is surely one way to help you get out of debt quickly.