September 24, 2017
 
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Bankruptcy Basics

Don’t buy into the idea that bankruptcy is an easy way to relieve overwhelming debt. Filing for bankruptcy should not be taken lightly. It is a complicated legal process that will leave you with damaged credit for many years.


The causes of debt are wide and varied from job loss to divorce, medical bills to poor spending habits, etc. The initial ease of acquiring credit cards and loans can lead people to make purchase upon purchase. Monthly payments may seem doable until the unexpected reduces income and cash flow. The lure of more credit to pay for current debts entices many into a cycle of debt accumulation.


If this cycle of debt has you running in a wheel, consider all your options and be well-informed about the process and effects of bankruptcy.


That being said, for those considering bankruptcy, here are some Bankruptcy Basics:


Chapter 7:


The most common form of filing, otherwise referred to as liquidation.  This option is available to individuals and married couples, as well as companies.  Under Chapter 7 bankruptcy, certain assets are liquidated to pay down debt.  


A Chapter 7 petition stops most personal or property collections, but not all debts can be forgiven. For example, alimony, child support and taxes will not be discharged.  For those whose debt fall mainly in these categories, Chapter 13 filing may be a better option.  Chapter 7 filing remains on your credit for ten years.


Chapter 13:


An adjustment of debt for individuals who meet certain income and debt requirements.  Filers are assigned a trustee who works with them on a repayment plan, which the court has the jurisdiction to alter. Chapter 13 bankruptcy stays on credit record for seven years.


Advantages of Chapter 13 over Chapter 7:


1. Assets are not liquidated and individuals may temporarily halt foreclosures and collection actions

2. Secured debts can be rescheduled to lower monthly payments

3. Acts like a consolidation loan and repayment is often a percentage of actual owning

4. Certain provisions may protect liable third parties, like co-signers

5. Filers have no direct contact with creditors


Why Avoid Bankruptcy?


Experts agree that people should do everything possible to avoid bankruptcy. Its effects hold you back, both financially and personally, and last for many years. Contact a professional credit counseling agency first to discuss your options. The call is free, and the advice is priceless.

 

 

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