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.
Chapter 7 vs. Chapter 13
A 2005 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 similar to what you would find with a debt management plan.
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 doesn't involve a liquidation of your assets but it may also involve expensive legal fees.
Filing Bankruptcy
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 several years, depending on the specifics of your situation and your ability to pay.
Debt Settlement - a Bankruptcy Alternative
Debt settlement can be 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 settle their debts for less than they owe.
As with all debt relief options, 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 bankruptcy attorney in your state. To learn more about the pros and cons of debt settlement, please contact Debt Shield now for a free, no obligation consultation.
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.
