Consumer debt happens to be the most common form of debt in the country nowadays. That’s normal and acceptable especially in our very commercialistic approach to life in this day and age. On the other hand, if your debt gets out of hand, then that means TROUBLE. This problem could be attributed to circumstances such as unemployment, illness, divorce lack of savings or simply, overspending.
Whatever the cause of your debt is, you have to get yourself out of the burden it’s giving you. In this dilemma, you have the option of filing bankruptcy as your method for debt relief. In most cases, a lot of people file for bankruptcy as the last and most viable resort. Thus, if you’re looking to go down this road, it’s better to educate yourself about the nature of bankruptcy and when it can be considered as the method for debt relief:
Bankruptcy as a Constitutional Right.
A lot of people think that filing for bankruptcy could be the lowest and most embarrassing point in your financial life. Nevertheless, don’t be too hard on yourself if you need to resort to this method of debt relief as sometimes it’s unavoidable.
The fact that it’s in our Constitution, this implies that our Founding Fathers must have acknowledged the inclusion of debts in our lives and the role that bankruptcy plays in redeeming us from the burden of our debts.
Bankruptcy as an Option for Debt Settlement
In case your negotiation with your creditors or lenders to construct a modified payment plan fell through, then you can file for bankruptcy as your last resort. There is no harm in trying if you want to discuss with your creditors and lenders a workable modified payment scheme. You just have to be transparent and honest about your financial situation and tell it to them upfront. Work out something that would benefit both your creditors or lenders and you.
However, even if you have laid down your cards correctly and the negotiations fell through, then bankruptcy would be a possible alternative. You have to decide later to file for bankruptcy and prepare for courtroom appearances. Aside from that, you have to be ready for the consequences of filing bankruptcy.
Bankruptcy and its Two Faces
Bankruptcy is a legal process that offers a person to ease up their financial problem by eliminating their debt or restructuring their debt payment plan. Before you file for bankruptcy, you need to consult a bankruptcy attorney to assess your financial burden.
There are several types of bankruptcy that are under the Bankruptcy Code of the Constitution. Out of these, only two apply to consumer debts. These are Chapter 7 and Chapter 13 Bankruptcy types. To qualify for either of these, you have to undergo a Means Test which determines if your income is fitted for Chapter 7 or Chapter 13 bankruptcy types.
Chapter 7 Bankruptcy
This type of bankruptcy will help you remove your debts such as credit cards, utilities and medical bills to name a few. What is so good about this type is that upon the filing of this, you would then immediately get protection from the court and debt collectors will be barred from calling you, suing you or re-possessing your properties.
However, this type doesn’t have the power to eliminate other debts, and these are alimony, child support, taxes, student loans, and criminal restitution. Although this kind may not protect your house, car, house furnishings, and work-related tools from foreclosures or re-possessions, your luxury items and accessories would be collected by the court and would be distributed to your creditors equally to cover payment for any of those debts that can’t be eliminated by Chapter 7. That’s why it’s called for the Liquidation Bankruptcy. In addition to these, this type of record stays on your credit report for seven years.
Chapter 13 Bankruptcy
On the other hand, if you don’t qualify for Chapter 7 bankruptcy for the reason that you have a stable and higher disposable income, then you would be advised to file for Chapter 13 bankruptcy. This allows you to keep your properties while you’re under a new repayment plan that would require you to pay your debts without interests and penalties in 3 to 5 years. If you follow this plan, automatically you would receive a discharge of debts at the end. This one offers you court protection from debt collectors. This one stays on your credit report for ten years.
Now that you have a simple and clear understanding of when to file bankruptcy, you must now choose which type would work to your advantage.