Debt Management Option: Understand Bankruptcy
A Credit Article Contributed by Brandie King
You may be able to use bankruptcy as a debt management option, but first you need to understand it. Without proper understanding you may get some rude awakenings and find out too late that bankruptcy isn't for you. You should always try every single other option available to you before filing for bankruptcy. Bankruptcy should only be used as a last resort.
Bankruptcy As Debt Management Option: Understand the Different Types
The first thing you need to do when contemplating bankruptcy as a debt management option is to understand what it is and the different types available to you.
Bankruptcy allows you to eliminate or restructure your debts when you are having severe financial hardships. There are two different types of bankruptcy that can be filed by consumers, both of which get rid of unsecured debt.
Chapter 7 (Liquidation) is where your non exempt assets are sold and money from the sales is distributed to your creditors to pay off your debts with them.
Chapter 13 (Restructuring) is where a repayment plan is established for you to repay your creditors over a 3 to 5 year period. You usually get to keep your property. The court will decide how your creditors will be repaid and what percentage of each debt you will have to repay.
Bankruptcy As Debt Management Option: Understand What Can and Can't Be Discharged
When thinking of using bankruptcy as a debt management option you need to know beforehand what debts can and cannot be discharged by filing bankruptcy. You may find that the debts you are wanting to get rid of won't go away by filing bankruptcy.
Dischargeable debts include, but are not limited to, credit card debts, bank loans, accounts payable to merchants, leases may be canceled, real estate, cards, and a wide assortment of personal property, and most unsecured debts.
Non dischargeable debt include, but are not limited to, debts you don't list on your bankruptcy filings, child support and alimony, student loans, legal debts owed to the state, tax debts, debt incurred fraudulently, purchases made on your credit cards within 60 days of filing, debts owned under a divorce settlement, and claims incurred from driving under the influence of alcohol or drugs.
Bankruptcy As Debt Management Option: Pros of Filing Bankruptcy
Filing for bankruptcy should may stop foreclosures, repossessions, garnishments, utility shutoffs, and debt collection activities. In most instances you can start over with a clean slate. You also have the possibility of keeping some or all of your assets. In addition you can't be fired from your job on the basis of your bankruptcy alone.
Bankruptcy As Debt Management Option: Cons of Filing Bankruptcy
When you file bankruptcy it will stay on your credit report for up to 10 years. If you have filed bankruptcy you will pay higher interest rates on credit cards when you try to get them in the future. You will face the possibility of losing can lose your house, car, and other assets. Something else that you should take into consideration is that anybody who has co-signed on a loan with you will still be responsible for the debt even after you have filed bankruptcy.
