What You Should Know About Default and Bankruptcy
If a debtor has “defaulted” on a loan, that means that they have not paid the debt in accordance with the terms of the original contract that they had with the creditor. For example, if you have a credit card and your balance one month is $1000. You are required to make a minimum payment on that debt within 30 days. If you do not make the payment, you are in “default” and the credit card company has the right to file a lawsuit against you and get a judgment. Once they have a judgment, they “enforce” that judgment by attaching your bank account or garnishing your wages.
Bankruptcy vs Default: The Real Difference
Bankruptcy is different. Bankruptcy is word that describes your constitutional right to get a fresh start if you find yourself in a bad financial situation. Chapter 7 bankruptcy allows you to “discharge” your debts, which means that you do not have to pay them, ever. Chapter 7 allows you to “reorganize” your debts, which means that you pay some or all of them back, but you get to set the terms, not the creditor. Chapter 13 bankruptcy is most often used to help people save their homes if they are facing foreclosure.
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If you have any questions about Chapter 7 or Chapter 13 bankruptcy and would like a free consultation, please call or e-mail anytime, we would be happy to help.