Bankruptcy
Sometimes bankruptcy is the right option for getting out of debt. However, it is a significant step and should be considered a last resort. Bankruptcy can be invasive, expensive and may affect your credit for up to 10 years.
Bankruptcy could be an effective way to resolve your overwhelming debt. Chapter 7 bankruptcy gets you out of debt faster than any other debt relief option and chapter 13 bankruptcy lets you hold onto your major assets. Filing for bankruptcy also stops all collection activity from your creditors.
Sometimes, filing for bankruptcy may do more harm than good:
- Debtors can leave bankruptcy court with heavy financial obligations due to court and attorney fees.
- Assets such as homes and business may sometimes be taken for payment.
- You have to explain yourself to a judge and to some creditors, which can be invasive and embarrassing.
- Bankruptcy remains on your credit report for up to 10 years and it may be very difficult to get a loan, even after the bankruptcy is over.
A recent bankruptcy law revision makes it more difficult to file chapter 7 bankruptcy, which is the chapter that gets rid of your debt. As a result, many bankruptcy filers file chapter 13 bankruptcy, which is essentially a repayment plan like you would find with a consumer credit counseling program.
Chapter 13 bankruptcy allows you to repay your creditors a reduced amount with a lower interest rate through a repayment plan approved by a bankruptcy court. Unlike chapter 7 bankruptcy, it lets you keep valuable assets, such as your home, but may also involve expensive legal fees.
To file for bankruptcy, you are generally required to:
- Under go a “means” test in which your income, assets, expenses, debts, personal background and financial information are sorted.
- Receive credit counseling from a government-approved organization within six months before filing.
- Submit a repayment plan to be approved by a bankruptcy court.
- Attend a meeting with your creditors.
Assuming your repayment plan is approved, you begin submitting regular monthly payments to the court-appointed trustee who is responsible for sorting the payments and sending them to your creditors. The repayment plan usually takes 3 to 5 years to complete, depending on your salary.
However, many chapter 13 bankruptcy filers do not make it through the repayment plan due to repeated unemployment or other unexpected expenses.
Debt settlement is an alternative to bankruptcy. Many of our clients were burdened with overwhelming debt and considering bankruptcy but chose our program when they understood how we can help them get out of debt and avoid bankruptcy.
There are pros and cons to filing bankruptcy. It is important that you understand the process and the risks before taking this drastic step. To learn more about bankruptcy, you should talk to a licensed attorney in your state who is competent on these matters.
Disclaimer: Debt Shield, Inc is not a law firm and under no circumstances should the information on this page or website be construed or relied upon as legal advice. If you need legal advice, you should contact an attorney licensed to practice law in your state.
