Three Must-Know Facts About Bankruptcy: A Simplified Guide

Category: Bankruptcy

Partner Preston Gardner

As we brace ourselves for some tough economic times ahead in Arizona, it’s wise to have a good understanding of options that could help navigate financial storms.

One such option is bankruptcy. Now, the word “bankruptcy” might sound scary, but it’s just a legal way to get some breathing room when money matters become overwhelming.

Let’s break down three crucial things you need to know about bankruptcy, in a simple and straightforward manner.

  1. A Fresh Start:

– Think of bankruptcy as hitting a reset button on a video game when the game gets too tough. It helps to wipe out or reorganize some of the debts you owe, giving you a fresh start. For instance, if you owe money on credit cards or medical bills, bankruptcy can make these debts disappear or become more manageable.

  1. Types of Bankruptcy:

– Just like there are different flavors of ice cream, there are different types of bankruptcy, each serving a different purpose. The most common ones are Chapter 7 and Chapter 13.

– Chapter 7 Bankruptcy is like a big eraser that tries to wipe out most of your debts completely. However, to qualify for this, you have to show that you have below-average household income.

– Chapter 13 Bankruptcy is more like a friendly coach. It helps you come up with a plan to pay back some or all of your debts over time, usually 3 to 5 years, making it easier for you to manage.

  1. It’s Not a Secret Passage:

– Bankruptcy is not a magic wand or a secret passage out of financial trouble. It’s a serious step that comes with its own set of challenges. For instance, it will show up on your credit report (a kind of financial report card) for several years, which could make it harder for you to borrow money in the future.

– Moreover, not all debts can be erased with bankruptcy. Things like student loans, child support, and some tax debts stick around, just like gum on a shoe.

Before thinking about bankruptcy, it’s a smart idea to sit down with a knowledgeable adult, like a bankruptcy lawyer, to discuss whether it’s the right step for you or your family. Each situation is unique, and a bankruptcy attorney can help explain the process and what it means for your financial future in a way that makes sense. Even in tough times, with the right information and support, you can make smart decisions to navigate through financial challenges.