As the recession drags on, many debtors are finding it increasingly more difficult to negotiate or otherwise deal with banks or other creditors. While there may be “options” advertised on television or the Internet – including debt consolidation – many of these “options” leave debtors further in debt and one step closer to the only option that provides relief – bankruptcy.

Bankruptcy Options

Generally, individuals will file one of two types of bankruptcy, Chapter 7 or Chapter 13. There are benefits and drawbacks to each type of bankruptcy, so it is important to seek out assistance in determining which type of bankruptcy is for the best for you based on your situation.

Chapter 7 bankruptcy – otherwise known as liquidation – involves a trustee converting the non-exempt assets of the filer to cash and using the cash to repay the debts owed to creditors. A filer is allowed to keep certain exempt property, which is defined by statute. Commonly, debtors eligible for Chapter 7 bankruptcy only have exempt property, meaning they are able to keep all of their property. After the non-exempt property is liquidated and the creditors are paid, nearly all of the debts owed are discharged.

There are eligibility requirements for Chapter 7 bankruptcy, however, a debtor must pass a means test.

Chapter 13 bankruptcy – otherwise known as repayment – is available for debtors with assets that they would like to keep and debtors not eligible for Chapter 7 bankruptcy, among others. Chapter 13 allows debtors who are behind on mortgage payments to keep their homes and make current any arrears. Under Chapter 13 bankruptcy, debtors establish a repayment plan to pay off as much as the debt owed as possible over three to five years. After the repayment period ends, much of the debtors’ debt is discharged.

Under both Chapter 7 and 13 bankruptcy, there are certain debts that cannot be discharged, including child support. Speak with an experienced bankruptcy attorney to discuss what debts are dischargeable and which are not.

If you are facing seemingly insurmountable debt, bankruptcy may be a better option than negotiating with the bank or other creditors or seeking help from a debt consolidation firm.

 

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