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Understanding bankruptcy, part 1: Chapter 7

If you are facing overwhelming debt and have decided to file for bankruptcy in Michigan, there are a few things you should know. First and most importantly, you need to understand what your options are. While it is important to work with an attorney to fully understand your specific situation, we will provide you with a quick overview of the two most common types of personal bankruptcy.

The first type is Chapter 7 bankruptcy. To qualify for Chapter 7, you must pass a test, known as a means test, to prove that it is basically impossible to repay the debt that you owe. If you meet the requirements, a Chapter 7 bankruptcy involves liquidating your assets. Because this type of bankruptcy discharges your unsecured debts, you will have to sell at least some of your possessions in order to pay off debts. Depending on your particular situation, you may have to sell your home.

Next, it is important to know that not all debts are dischargeable through bankruptcy. Secured debts, including student loans, spousal support, child support and tax debts will generally stick with you through bankruptcy. Getting rid of other debts, however, can help free up some money to put toward these debts.

Finally, know that filing for bankruptcy will affect your credit score for a while. If you file for Chapter 7 bankruptcy, it will show up on your credit report for a decade. Many people, however, are still able to qualify for credit after bankruptcy.

When faced with debilitating debt that you have no way of paying off, bankruptcy may be the right options for you. It is important, however, to approach it with appropriate expectations, which is why many people find it helpful to work with an experienced attorney.

Source: Fox 12, "Know these bankruptcy facts before you file," Andrew Housser, April 15, 2013

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