Debt and Bankruptcy

Consumer debt is at an all-time high and record numbers of consumers are filing for bankruptcy. Whether your debt issues are the result of an illness, unemployment, or simply overspending, it can seem uncontrollable to you. In your effort to make things better financially, you may be lured by advertisements that offer seemingly quick fixes, like debt relief services. While the ads promise debt relief, they rarely say debt relief may be services that help you file for bankruptcy. Although bankruptcy is one option to deal with financial woes, it should be considered your last resort. Filing for bankruptcy can have a long-term negative impact on your credit record. A bankruptcy stays on your credit report for 10 years, and can hinder your ability to get credit, a job, insurance, or even a place to live.

If you're having trouble paying your bills, consider these options before considering filing for bankruptcy:

• Talk with your creditors. They may be willing to work out a modified payment plan.
• Contact a credit counseling service and ask about debt relief programs. These services work with you and your creditors to develop debt repayment plans. Such plans require you to deposit money each month with the counseling service. The service then pays your creditors. Some nonprofit organizations charge little or nothing for their services.
• Carefully consider a second mortgage or home equity line of credit. While these loans may allow you to consolidate your debt, they also require your home as collateral.

If the options listed above do not offer debt relief, bankruptcy may be the route you need to go. There are two main types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in a federal bankruptcy court.

Chapter 13 allows you, if you have a regular income and limited debt, to keep property, such as a house or car, that you otherwise might lose in bankruptcy. In Chapter 13, the court approves a repayment plan that allows you to pay off a debt in a period of three to five years, rather than give up any property.

Chapter 7 involves liquidating all assets that are not exempt. Exempt property may include cars, work-related tools and basic household furnishings. Some property may be sold by a court-appointed official-a trustee-or turned over to creditors. You can receive a discharge of your debts under Chapter 7 only once every six years.

Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. Both also provide exemptions that allow you to keep certain assets, although exemption amounts vary. Personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations.

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