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Bankruptcy - You don't have to go Bankrupt to be Debt-Free

Bankruptcy Basics

Flirting with the idea of filing for bankruptcy to relieve you of overwhelming debt is something that shouldn’t be entered into lightly. The truth is that it’s a complicated legal process that will leave you with a ruined credit rating for many years to follow. Reasons for filing vary, from job loss to divorce to medical problems. With widespread materialism, consumers no longer need cash to make purchases. Credit is too easy to obtain and when families are already stretched to the maximum, one unexpected financial crisis is enough to land them in a hole that they can’t climb out of. Here is some basic information on bankruptcy that everyone should know.

 

Chapter 7
• Commonly known as liquidation
• Takes four to six months from the date of filing to the final discharge
• Can file only once in six years
• Filers must liquidate personal assets to pay down some of the debt.
• Option for people who have few or no assets, little or no income, and a lot of debt.
• Stays on credit score for 10 years
• Income must be less than the median income in their state.
• May be able to keep all or some equity in your home, depending on your state.
• Certain debts cannot be forgiven.
• Won’t stop or postpone all debt collections or lawsuits.		 Chapter 13 

• Better known as debt adjustment 

• Allows individuals to temporarily halt foreclosures and collection actions while they implement a plan to repay some or all of the debts over a 3–5 year period.
• The amount that has to be paid on debt will depend on your income, not on how much is owed. 

• Differentiates between three types of debt: priority debts, secured debts, unsecured debts 

• Lets you reschedule and extend secured debts over the life of your Chapter 13 plan. 

• Debt limits apply
• Stays on credit score for seven years

 

Bankruptcy Reforms in 2005
On October 17, 2005, new bankruptcy laws went into effect. Among other reforms, the new law requires that a person filing must get credit counseling from a government approved credit counseling agency within 180 days before filing. There are few exceptions, such as access to a qualified agency.
Why Avoid Bankruptcy?
Many experts agree that people should do everything possible to avoid bankruptcy. It’s not such an “easy out” as many think. It does leave a black mark on your credit history for years, therefore, making it more difficult to qualify for loans, mortgages, and credit cards. In sum, it can hold you back in many aspects of your life, personally and financially.
 
In most cases, it’s wiser to take steps to correct the problem by tackling the debt head-on with the guidance and expertise of a professional credit counseling agency. Developing and implementing a plan will take time, but with persistence and patience, the debt can be paid off.