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Bankruptcy Options
Bankruptcy today is
considered an absolute last resort. We generally recommend our clients
only think about bankruptcy after they have worked through every other
available method of repaying their debts.
Although the definition
is almost irrelevant to today's credit environment, the American Bankruptcy
Institute offers two purposes for bankruptcy.
- To give creditors
a fair share of the money that you can afford to pay back. (Chapter
13)
- To give you, the
debtor, a fresh start by discharging your debts. (Chapter 7)
Bankruptcy may indeed
be an appropriate option, but only after all avenues have been exhausted.
These avenues include:
- Contacting your
creditors and negotiated repayment terms
- Stopping using
credit cards and withdrawing cash from other loans
- Contacting a credit
counselor and worked faithfully to stay on a debt management program
If these options have
been exhausted, sometimes a debtor may want to consider bankruptcy. But,
no matter which form of relief a debtor seeks, there are more disadvantages
than advantages to bankruptcy.
Bankruptcy Advantages
- Pardons debts,
or reduces debts for individuals in severe financial distress due to
circumstances such as illness or loss of a job.
- Can temporarily
prohibit creditors from seeking foreclosure of a home or repossession
of a car.
- Can temporarily
prevent wage garnishment, debt collectors' harassment, and disconnection
of utilities.
Bankruptcy Disadvantages
- Blemishes an individual's
credit record for 10 years, making car and home purchases difficult.
- Necessitates higher
interest rates - or secured credit cards - for people who are granted
credit despite a bankruptcy record.
- Does not discharge
debts such as alimony and child support; most student loans; certain
federal, state, and local taxes; debts from criminal activity; legal
fines and penalties; luxury purchases made within 60 days of filing;
and debts not listed on bankruptcy papers
- Bankruptcy is a
notice of public record that may be seen by potential employers, insurance
companies, mortgage businesses, and other lenders
- Is a social stigma
that can cause feelings of guilt and embarrassment
- Although it may
fix short-term problems, bankruptcy can stay on your credit report for
a full 10 years.
Contact
us today for a free consultation.
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