Bankruptcy of Individuals in USA
In the USA, individuals who can’t keep up with debt payments can file for bankruptcy, a legal process that provides relief from overwhelming financial burdens. The two main types of bankruptcy for individuals are Chapter 7 and Chapter 13. Chapter 7, often called “liquidation bankruptcy,” involves selling off certain assets to pay creditors and, in many cases, discharging (erasing) remaining debts. This process can be completed in a few months, though it’s often a last resort since it has long-term effects on a person’s credit.
Chapter 13, on the other hand, is called a “reorganization” bankruptcy. In this type, individuals keep their assets and create a court-approved plan to pay back debts over a period, typically three to five years. This option is useful for people with steady income who need a way to manage their debt more effectively. Both types of bankruptcy offer individuals a fresh financial start but come with consequences, including credit impact and limited access to certain types of loans for a time.
By CA L.Muralidharan and CPA L.Mukundan
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