Being deeply in debt is about as much fun as jumping out of an airplane with no parachute. It can cause you to lose sleep, develop stomach problems, experience heart palpitations and, in short, just make your life miserable. One way to get rid of most of your debts, at least your unsecured debts, is to declare bankruptcy.
What are secured debts
The difference between these and unsecured debts is that they are secured by an asset that you pledge or use as collateral. The number one example of a secured debt is a home mortgage. This is because the house itself secures the mortgage. If you were to default on your loan, the lender could get some or all of its money back by repossessing the house. The other type of secured debt that most of us have is an auto loan as the automobile secures it.
Credit card debt is the prime example of unsecured debts. Other examples include medical bills, personal loans and lines of credit – as an asset secures none of these.
The pros of bankruptcy debt relief
When most people say bankruptcy, what they mean is a chapter 7 bankruptcy, which is a liquidation bankruptcy. Its purpose is to liquidate your assets to help pay off your creditors and get you a fresh start. The biggest pro of declaring bankruptcy is that it will discharge – or eliminate – most of your unsecured debts, including credit card debt, medical bills and personal loans.
What you will be allowed to keep
As mentioned above, the primary purpose of a chapter 7 bankruptcy is to liquidate your assets. However there are exceptions to this. For example, depending on where you live, you will probably be allowed to keep anywhere from $15,000 to $50,000 of equity in your house and $3,000 equity in your automobile. You will also be allowed to keep your furniture, clothing, any tools used in your job and certain other personal possessions.
Stopping a foreclosure
The date you file for bankruptcy, the court will issue what’s called an “order for relief,” which automatically stops all repossession and collection activities. It also stops any wage garnishments. In fact, if your wages are being garnished, filing for bankruptcy is the only way to find relief besides paying off the debt.
The cons of bankruptcy debt relief
One of the negatives of filing for bankruptcy is that it won’t discharge some unsecured debts such as past-due alimony or child support, back taxes and student loan debts. You’ll also have a hard time getting any new credit for two to three years, which means it will be very difficult for you to buy a house or an automobile. You will also be unable to get any credit cards that have reasonable interest rates. You may be barraged by credit card offers but they will be ones that have extraordinarily high interest rates.
If you have some amount of disposable income, the judge or bankruptcy referee could order your chapter 7 bankruptcy to be converted to a chapter 13 in which case you would be required to pay off your debts instead of having them discharged.
A better alternative
We believe that a better alternative to a chapter 7 bankruptcy is to let us negotiate or settle your debts for you. Our debt counselors have years of experience negotiating with credit card companies and other lenders and are usually able to get both your balances and interest rates reduced – to help you get out of debt in 24 to 48 months. Debt settlement will have an effect on your credit score but not as serious a one as if you had filed for bankruptcy. Be sure to call our toll-free number today and let us explain how debt settlement works and how it could help you.