Bankruptcy

More and more these days, people at first sign of financial trouble consider bankruptcy as an end-all solution to their credit problems. In some circles, filing for relief is considered a basic part of financial strategy: when worse comes to worse, just file and walk away. While bankruptcy may be appropriate for some, there are other alternatives available that can help accomplish the same goal of getting you out of debt without taking the drastic step of declaring a chapter 7 or chapter 13.

What is bankruptcy?

Bankruptcy is a legal way for those burdened by too much debt to wipe the slate clean or reorganize their payment schedule and start over again. In the case of chapter 7, it's a way to legally not pay your creditors and start anew. In the case of chapter 13, it's a way to reaffirm your commitment to repay your debts, only this time on new terms. These are the 2 most common forms of bankruptcy used in dismissal or reaffirmation of consumer debt.

Each chapter has it's own merits, but each comes with far reaching consequences that can affect you for years to come. Bankruptcy may be a viable alternative for some, but before considering the drastic step of filing there are other options available.

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Chapter 7

Chapter 7 bankruptcy, or "straight bankruptcy", requires the debtor to liquidate all non-exempt assets to pay off their creditors in order of precedence. This form is generally used by those who lack sufficient income to cover outstanding debts after taking care of basic necessities. This is the most popular form because it allows the debtor to wipe the slate clean and get a fresh start. There are however, certain obligations that are not dischargeable, for example:

Alimony and child support

Back taxes and student loans

Recently made purchases for substantial amounts

Property executed contracts involving titles or liens

Before considering this drastic step, you should take an inventory of the types of debt owed. This form of bankruptcy should be considered an option of last resort after all other avenues have been pursued. Keep in mind, bankruptcy, either chapter 7 or chapter 13, doesn't come without some long-term consequences.

Chapter 13

Those who have too much disposable income to file chapter 7 or have assets they want to protect may want to consider chapter 13. With chapter 13, the debtor reaffirms their commitment to repay all or a part of their debts. This code allows the debtor to restructure their payments and set up a new payment schedule (usually 3-5 years) that is more manageable. This form of bankruptcy is used when the petitioner has property they want to keep like a mortgage that is about to be foreclosed on and other non-exempt assets that would be liquidated under chapter 7. Filing under this code will halt all collection and foreclosure proceedings and allow the debtor to catch up on their payments and reinstate their original agreement.

Your payments will be made to a Trustee who will disburse them in a manner called for in the court-approved plan. During this time the Trustee will have control over your finances and any credit-related matters will have to be cleared through him.

Repercussions

Keep in mind bankruptcy doesn't come without some trade offs. For example, filing puts the world on notice about your personal financial affairs. Since it's a civil court proceeding it becomes a matter of public record. In some cases, (chapter 13) even your employer can be involved because this chapter requires deductions from you paycheck.

Bankruptcy also stays on your credit report for up to 10 years and can hinder your ability to get a job, establish new credit, get insurance and even a place to live. Furthermore, you will have to pay court, filing and attorney fees up front. You will also lose control over your finances since a Trustee will be appointed to oversee the completion of your filing. This in addition to the fact that filing doesn't necessarily get you out of all your obligations, bankruptcy is not that end all solution that it's portrayed to be.

There is one way to get the financial relief you seek that doesn't involve the hassles of attorneys, court appearances, creditor meetings and judges. Click on the link below and find out what thousands before you have already discovered. Receive a free consultation from a debt consolidation specialist who understands your credit problems!

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