When you’re so deep in debt that you can’t find a way out and the phone calls from debt collectors won’t stop, you probably start worrying about your wages being garnished. Then you see one of those ads promising to handle your bankruptcy proceeding for less than $500 and ask yourself, why not?
There are many reasons to avoid bankruptcy, if that is at all possible. But there are exceptions, like if you’re unable to repay debts for essentials like food and a place to live. Learn the basics about bankruptcy before making a decision that could affect your credit and your life for years.
If you choose bankruptcy, it’s important to understand the different types. While the United States Bankruptcy Code lists six different types (Chapter 7, 9, 11, 12, 13 and 15), the two most common are Chapter 7 and Chapter 13.
Most people choose Chapter 7 because it allows the possibility of eliminating certain unsecured debts without a repayment plan. In comparison, Chapter 13 requires you to reorganize and pay off your debts.
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Chapter 7 bankruptcy
People who choose this option are required to file a number of documents with the court, including a list of assets and liabilities and current income and liabilities. You’ll also be required to go through credit counseling and provide a statement as proof before you’re allowed to proceed.
Which debts will be discharged?
A Chapter 7 bankruptcy will generally discharge most of your unsecured debts. This typically includes credit card debts, personal loans, medical bills, past-due utility bills, bad checks (unless fraud was involved), civil court judgments and revolving charge accounts.
The hidden dangers
While filing for Chapter 7 bankruptcy may seem like the simplest route, it’s important to be aware of its long-term effects.
1. Not all your debts will be eliminated
Contrary to popular belief, a Chapter 7 bankruptcy will not eliminate all of your debts. It will not discharge:
- Taxes and tax liens
- Student loan debt
- Alimony and child support
- Debts obtained through fraud, false pretenses, or false representation.
2. It stays on your credit report
The second and biggest negative of a Chapter 7 bankruptcy is that it will stay on your credit report for 10 years. That’s an awfully long time during which you may find it very difficult to qualify for new credit at a decent interest rate—if you qualify at all. You may also find it impossible to get a new mortgage or receive approval to rent a house or apartment.
3. The loss of belongings
You will have to put the squash on all your credit cards, and you could lose some of your possessions. Property such as boats, travel trailers and second homes may end up being sold to satisfy some of your debts.
4. It can turn into a Chapter 13 bankruptcy
Finally, if the court finds that you have a certain amount of disposable income, they could decide to convert your case into Chapter 13. This means that instead of being free of most of your debts within 4 to 6 months, you would be required to pay them over a 3–5-year period.
Why choose debt settlement over bankruptcy
If every new bill sinks you deeper into debt, you should check out your options for debt relief first. It could help you pay off your debt faster and for less than you owe. Plus, it won’t affect your credit score for ten long years.
Many families rely on debt settlement with National Debt Relief to avoid the serious consequences filing for bankruptcy can have on their credit. Our debt specialists can negotiate settlements with your creditors that could save you thousands of dollars and help you become debt-free in as little as 24 – 48 months. This is a great option if you want to pay off your debt and avoid bankruptcy on your record. Why not get a free savings estimate here?