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Bankruptcy
Bankruptcy law allows individuals who are deep in debt to free themselves of their financial burdens and pay off creditors with what they have. Once the assets have been divided among the creditors the debtors are then freed of the remainder of their financial obligations.
This is an obviously exaggerated example of going bankrupt and other restrictions on the debtor and creditors do apply.
There are two ways to enter into bankruptcy proceedings:
- Chapter 7 - Otherwise known as Liquidation. Simply put, you hand over all your property not exempt under the law to a middleman who then sells your property and divides the proceeds between your creditors.
- Chapter 11 - This method is somewhat different in the fact that it allows the debtor to try and rehabilitate himself with his creditors using future earnings. Property is monitored by a trustee who then oversees the repayment process.
It is advisable to stay out of these type proceedings as they do in fact ruin your credit for 7 years. Before your situation gets too bad we suggest you contact a credit counseling company or debt reduction company who can make arrangements with your creditors to lower your monthly payments and sometimes lower the interest associated with the debt.