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Filing bankruptcy to relieve you of your debts can be compared to setting off a nuclear bomb. It will
definitely get rid of your debts. However, it is difficult to hide the fact that you filed for bankruptcy a
nd the effects will be long-lasting and far-reaching. Filing bankruptcy should only be used as a last resort.
It will stay on your credit report for up to 10 years making getting credit, renting an apartment or possibly
even a job difficult to get. Before considering filing for bankruptcy, consider the following:
- Speak with your creditors: You may be able to work out a re-payment arrangement.
- Contact a credit counseling service A credit counseling service (CCS) helps to negotiate a payment plan between yourself and your creditors. In most cases, creditors cease to charge interest on your accounts in order to help with re-payment. For more information, see Credit Counseling Services.
- Sell any assets If you have any assets (eg. House, car, investments) sell what you can and apply the money to your debts.
- Consolidate your debts Consolidate all of your outstanding debt into one loan. This will reduce your monthly payments.
When To File Bankruptcy
The decision to actually file bankruptcy is difficult as there is no set guideline as when to actually.
We can say that if your unsecured debts are below $5000, you should be not be looking to file for bankruptcy.
Being hassled by collectors for money you do not have can be frustrating and bankruptcy would provide relief
from this strain. However, creditors can apply for a "relief from stay" and continue with their collection
activity. A financial advisor or lawyer should be consulted when deciding to file for bankruptcy.
There are two types of bankruptcies:
Chapter 13: This bankruptcy option may let you keep property (eg mortgaged house or financed car) that you
may otherwise lose. When going this route, you need to submit a re-payment proposal to the courts. Once
approved, you pay your trustee monthly who in turn distributes the money according to the re-payment schedule.
Once the payment term has been fulfilled, you will be discharged. If you have a regular income and a stable
job, this may be the route for you. This type of bankruptcy may be filed at any time.
Chapter 7: Here a petition is filed with the courts where you disclose all of your assets, debts, income and
any relevant personal information. Any assets you possess are sold and the proceeds are split amongst your
creditor. Following this, you will be discharged. You can only file this bankruptcy once every six years.
Personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan
obligations.
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