The question “Will bankruptcy clear my debts?” seems to be the question that everyone knee deep in debt asks themselves. The basic concept being that bankruptcy will give your creditors or trustees the legal right to your assets to repay what you owe them. But is it really that simple?
For many people, declaring bankruptcy seems to be the easiest way out to be out of debt. By declaring bankruptcy, you release the rights to your assets and in exchange your debts are cleared. Of course, this choice comes with consequences. Your credit score will suffer and this bankruptcy declaration will remain on your personal record for 10 years.
The most common type of bankruptcy filed is Chapter 13 bankruptcy, because it allows you to retain your property and various assets. Chapter 13 is similar to debt consolidation, but in exchange for longer terms and lower interest rates, you give up some of your assets to pay off your debt. However, if you find yourself with your back against the wall with no steady income and no safety net, your best option will be Chapter 7 bankruptcy. This type of bankruptcy will clear your debts, but it will put you in default and you will have to start from scratch to rebuild your credit.
Keep in mind that even though declaring bankruptcy clear your debt and give you a fresh start, it will also put you in a default situation where you will have very few assets left in your name. You will essentially be starting over. It is never easy to file for a bankruptcy. It can take a long time and the road to recovery is long and hard. Learning from your mistakes will be very important and will help guide you as you start to rebuild your life.
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