Bankruptcy vs debt consolidation, which one is right for your current debt problems?

For those who feel that they are in serious financial distress, bankruptcy may have crossed their minds. Bankruptcy is not something to be taken lightly. While your debt may be wiped clean, there are far-reaching consequences for that “new freedom”.

When a person’s debt has risen to a level that they can’t hope to get under control, they may consider filing for bankruptcy. For a consumer there are two bankruptcy choices: Chapter 7 and Chapter 13. Chapter 7 bankruptcies involve wiping out the debts in part or in their entirety and liquidating assets to do it. Chapter 13 bankruptcies are more of a debt restructuring plan that gives you more time and a plan to pay back a portion of the debt that is owed to creditors.

Your credit will be damaged if you file for bankruptcy, maybe for as much as ten years. If you apply for any credit during that time the creditor will be informed of the bankruptcy.

Previously, people have taken advantage of bankruptcy laws. They were allowed to file more than once for Chapter 7 so many used it to wipe out all their debt.

Each state decides on what assets they will exempt from being seized during a bankruptcy hearing. Knowing that, some may use available cash to purchase those items (homes, cars, etc.) in an effort to avoid payment and still retain the stuff they purchased. In this instance, creditors receive little or nothing from the bankruptcy settlement.

The new laws concerning bankruptcy have changed this. Whereas courts used to have the leeway of deciding who could file for Chapter 7 bankruptcy, there are now criteria that must be met first. In order to file for Chapter 7 bankruptcy, a person has to have an income that is below the median income for the state where they live. Their income must be put through a calculation that determines if they have enough disposable income to pay twenty-five percent of their outstanding debt.

More people will have to file for bankruptcy under Chapter 13. The courts will decide the amount of repayment from facts that they receive. An allowance is made for rent or mortgage, food and other relevant bills. With the new laws, the IRS regulates the value of each bill, exempts a certain amount, and payments are decided from the rest.

Lawyers are charging more than ever because declaring bankruptcy has become much more involved. The whole process will cost the client much more than before which will hopefully make them think twice about filing. Credit counseling is also required as a first step before filing bankruptcy. The counselor may be able to help you and rule out the need to file.

Bankruptcy should always be a last resort. While it will give you a clean slate, it comes at a price.

About the Author:

Are you tired of barely keeping up with your credit card debt? Get some simple debt consolidation secrets on the Debtopedia website. Get a free copy of my report “Secrets Of Credit Card Debt” at http://www.debtopedia.com

William Blake | Bankruptcy Basics, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy |

Tags: Chapter 13 Bankruptcy, Chapter 7 Bankruptcy

A Free Gift For You!

As a way of saying "Thank You" for visiting this site here's a free gift for you. This money saving eBook is worth $17.

About this eBook: Are you wasting money? Chances are there are ways that you can easily cut back on your unnecessary spending and you won't even notice a difference. Simply learning about these techniques is the first step to making changes to your finances. We asked money experts what their best tips are for trimming the fat from the average person's budget and here are their suggestions. Click here to download this free eBook. This is a time limited offer and the download link can be taken away without notice. No sign-up form to fill-up, no email address to give, just plain free download!

You might also like to read these recommended articles

• Which Has Legal Chops - Debt Consolidation or Chapter 13 Bankruptcy?
  With the deteriorating state of the economy, ads for debt consolidation are popping up everywhere. You see them on television, on the internet, even on the spine of the telephone directory. Debt is a huge problem, and more and more folks are looking for help in straightening out their financial situations.
  
  
• When Declaring Bankruptcy is a Good Option
  Bankruptcy is a legal process intended to help individuals and companies who are unable to meet their debt obligations. Bankruptcy can help you get control of your financial situation and help you maintain possession of property to which creditors might have a legal claim. The process can have very negative effects on your ability to borrow money for quite a long time (up to ten years), but there are circumstances where bankruptcy might be the best option.
  
  
• Bankruptcy vs. Credit Card Debt Counseling
  If you are overwhelmed by debt, there are a number of solutions. The most drastic of these is filing bankruptcy. I want to encourage you to make sure that you have examined all of the available options, including credit card debt couseling, debt settlement and negotiation before you go down this road. In recent years, the stigma surrounding filing bankruptcy has lessened somewhat. However the effects are financially devastating, and long ranging.
  
  
• Some Things Worth Knowing About Chapter 13 Bankruptcy
  As good as it may seem that filing bankruptcy will help you out of such financial mess, it can also lead to much confusion in your mind trying to figure out what is Chapter Thirteen Bankruptcy and how does it differ from chapter seven bankruptcy. Chapter 13 bankruptcy may cost you about $185 to file and it is commonly also referred to as reorganization bankruptcy and such a form of bankruptcy is generally filed by persons that wish to eliminate their debts in three to five year's time. Under Chapter 13 bankruptcy, individuals can keep part of their possessions and also have a means to finance some of their day to day expenses while at the same time still have some money left over to pay off their debts.