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How to Decide If Bankruptcy Is for You

Tough economic times are causing many people to struggle financially. Unforeseen events such as the loss of a job, a major medical issue or the accumulation of credit-card interest and penalties can cause even the hardest working people to rack up thousands of dollars of debt. Even worse, creditor harassment can make life incredibly stressful. These circumstances understandably cause many people to feel like they are drowning in a sea of debt.

Fortunately, many options are available for dealing with debt and creating a path toward a better financial future. Filing bankruptcy, a process through which people are able to discharge debts that they cannot pay, is one option that many people consider.

Types of bankruptcy

There are four types of bankruptcy commonly declared in the United States: Chapter 7, Chapter 11, Chapter 12 and Chapter 13. The two types most commonly declared by individuals are Chapter 7 and Chapter 13. Chapter 7 bankruptcy, also known as a straight liquidation bankruptcy, is the form of bankruptcy declared by most individuals in the United States. Through a Chapter 7 bankruptcy, individuals are able to get rid of most if not all of their unsecured debts and usually get to keep most, if not all, of their property.

Chapter 13 bankruptcy is the second most common form of bankruptcy declared by individuals in the United States. Declaring Chapter 13 bankruptcy involves consolidating debts under a court-approved plan to pay creditors a monthly amount for three to five years. People who declare Chapter 13 bankruptcy generally do not have to give up their property and at the end of the repayment period, most remaining unsecured debts are discharged.

Is declaring bankruptcy a good idea for you?

Many considerations should factor into the decision of whether or not bankruptcy is right for you. Depending on your specific circumstances, bankruptcy may be able to help you in the following ways:

  • Bankruptcy can permanently eliminate most types of unsecured debts, allowing you to move forward with a fresh start.
  • Bankruptcy can stop creditor harassment because as soon as a bankruptcy petition is filed an automatic stay goes into effect that prevents collection efforts.
  • Bankruptcy may be the only way to stop creditors from garnishing your wages or levying your bank account and in some cases can even help you get back funds that were already taken.
  • Filing bankruptcy can be used to prevent a home foreclosure and allow you time to cure a mortgage default.

Despite these benefits, bankruptcy is not right for everyone. Declaring bankruptcy may not be the best path for you if some of the following circumstances apply to your situation:

  • Bankruptcy can't get rid of all types of debt. For example, student loans, most tax debts and child support and alimony obligations cannot be eliminated.
  • If the circumstances which led to your financial situation are still ongoing it may not be wise to declare bankruptcy until they are resolved. This is because debts you incur after a bankruptcy will not be discharged and there are limits on how often you can declare bankruptcy.
  • Bankruptcy may not be right for people who are very concerned about the negative effects it can have on their credit reports or reputations.

If you think bankruptcy can help you, you should contact a California bankruptcy attorney. Bankruptcy laws are complex and an experienced lawyer can discuss which options can provide the best relief for your situation.

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