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For Those With A Major Credit Debt Problem, Bankruptcy Has Pros And Cons

In the volatile world of finance, problems involving debt are not uncommon. However, when a credit debt problem becomes a predicament, one should be particularly cautious to prevent bankruptcy. Still, this processes benefits and drawbacks for the consumer.

Experts typically refer to bankruptcy as a last option in the management of one's debt, as the results are significant and enduring. Those who successfully file for bankruptcy receive an order from a court, stating that they are no longer required to repay particular debts. This is referred to as a discharge. However, not all of the news is good. There is a major drawback to this solution of a credit debt problem: the date that you filed for bankruptcy and the subsequent discharge remain for a full decade on your credit report. Furthermore, afterwards it can become very challenging to obtain life insurance, get credit, purchase a home, or even be hired for a job. Nevertheless, for those who get in a financial quagmire and cannot pay off their debts, bankruptcy offers a legal method for a clean financial slate. Currently, Chapter 7 and Chapter 13 exist as the main varieties of personal bankruptcy in the United States.

In October, 2005, Congress made extensive changes to laws involving bankruptcy. One of the major alterations involves a consumer's challenges that must be overcome prior to filing for every type of bankruptcy. If you have a credit debt problem, within six months of filing for any variety of bankruptcy relief you must acquire credit counseling from an organization that the federal government has authorized. Furthermore, prior to filing a for Chapter 7 bankruptcy, which will be explained next, you must pass a "means test." This examination necessitates that your incomes does not surpass a particular figure, which varies from state-to-state.

Another major change that Congress made bankruptcy laws encourages consumers with major credit debt problem, to file for Chapter 13 bankruptcy as opposed to Chapter 7. Chapter 7, known as straight bankruptcy, is another way to settle your credit debt problem. This process entails the liquidation of every asset that is not exempt (i.e. work-related tools, fundamental household furnishings and cars). A trustee, an official that the court appoints, is permitted to sell a portion of your property. In other cases, the property is surrendered to your creditors. With the updated Chapter 7 laws, you cannot receive a discharge in Chapter 7 and file again under Chapter 7, until a minimum of eight years have passed.

On the other hand, Chapter 13 permits those with a consistent income to retain their property (i.e. car or mortgaged car) that they would have lost via the procedure of bankruptcy. The court supports a repayment plan in Chapter 13, which helps you to avoid losing your property. Through this plan, during an interlude of 3-5 years, you are permitted to settle debts using your future income. You are then granted a discharge of your debts after all payments under the plan have been successfully made. Differing from Chapter 7, Chapter 13 bankruptcy typically has a significantly shorter waiting period between filings. In fact, the period can be as short as two years.

Bankruptcy has generally acquired negative connotations in today's world of finances. However, for those with a major credit debt problem who want a fresh financial start, it certainly exists as an option worth considering.

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