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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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