Debtors who are thinking about bankruptcy will generally choose between filing for Chapter 7 or Chapter 13 protection. Connecticut residents who want to pursue a Chapter 7 case will need to take a means test to verify that they cannot repay their debts. If an applicant passes a means test, assets will be liquidated with any money raised going to repay creditors.
It’s important to note that some debts such as student loans or back child support cannot be erased through bankruptcy. It’s also worth noting that a Chapter 7 bankruptcy remains on a credit report for up to 10 years. A Chapter 13 case only stays on a credit report for seven years. In a Chapter 13 proceeding, debts are repaid over three or five years. Debtors are allowed to retain property such as a home or car during the repayment period.
Regardless of what kind of bankruptcy proceeding a person opts for, it can have a significant impact on a credit score. Bankruptcy can also make it difficult to apply for credit, and lenders may insist that borrowers who have recently sought protection from creditors secure a loan with collateral. Although the consequences may be significant, there is generally less of a stigma surrounding bankruptcy today compared to years and decades past.
Filing for bankruptcy may be ideal for those who don’t have enough money or assets to repay a credit card or other type of debt. In a Chapter 7 case, certain assets such as equity in a home or a retirement account may be exempt from liquidation. Other benefits of bankruptcy include the possibility of repaying secured debts over a period of several years or avoiding phone calls or collection letters from creditors.