Consumers who have large debts could try negotiation with creditors. If they see no way of paying those debts, bankruptcy in Florida could be an option. Bankruptcy legally erases certain debts, but it often comes with consequences. Understanding how bankruptcy works and the consequences can help consumers make informed decisions.

Bankruptcy types

Federal courts define and handle six types of bankruptcy. Two common types of bankruptcy include Chapter 7 and Chapter 13. Chapter 7 liquidates the debtor’s non-exempt assets to pay creditors usually through a trustee. Examples of exempt property include a primary vehicle, necessary clothing, damages awarded in court cases and necessary business tools.

Chapter 13 bankruptcy involves a structured payment plan to pay off some or all debts without losing assets. Chapter 11 bankruptcy is commonly reserved for businesses. Not all debts can be erased during bankruptcy, which include child support, student loans and certain tax debts.

Filing bankruptcy

Debtors must follow the required procedures for filing, or their case could be dismissed. Laws commonly state that debtors have to file a petition with the court and undergo a credit counseling session before filing bankruptcy.

The petition must include all income, debts and assets. Applicants will need to take a means test to determine if they qualify for filing chapter 7.

After bankruptcy

Each bankruptcy type generally has some negative impact on credit scores because filing bankruptcy makes the debtor look like a risk. Chapter 13 bankruptcy can commonly remain on credit reports for seven years, and Chapter 7 may stay on credit reports for 10 years. Bankruptcy law also sets limits on how often debts can get discharged.

Bankruptcy can give debtors a fresh start, but debtors must accurately follow the procedures. Individuals who want to learn more about filing for bankruptcy may want to consult an experienced attorney about their concerns.