Credit Card Debt

What is Bankruptcy?

There are two types of bankruptcy, Chapter 7 and Chapter 13. Filing for a Chapter 7 bankruptcy means you are asking the courts to completely discharge your debts. Filing for a Chapter 13 bankruptcy is when you set up a court-approved plan to repay your debts.

Bankruptcy can negatively impact your credit report for as much as ten years. Bankruptcy also can be reported for life if you apply for a job, loan, or life insurance; it is not the "quick fix" it is advertised to be and should only be considered if you have exhausted all other debt relief options.

Your debt might dissolve overnight, but the emotional effects can last a lifetime. The limitations and embarrassment caused by filing bankruptcy is rarely worth it. It is difficult to predict what opportunities you may be denied because of a damaged credit rating, for example, the purchase of a home or a business.

Chapter 7 Bankruptcy

The Chapter 7 bankruptcy filing takes approximately 3 to 6 months. When filing you must disclose the following personal information to the courts:

1. Property and income
2. Debts and living expenses
3. Property you claim to be exempt
4. Property transactions for the two years prior to filing

Filing a Chapter 7 petition will stop most debt collection actions against you. Creditors are not allowed to start or continue lawsuits, wage garnishments, or even telephone calls demanding payments. However, there are certain bankruptcy requirements that you must meet in order to be eligible for Chapter 7, and the right to discharge is not absolute so you may still have some debts left over after your bankruptcy is discharged.

Chapter 13 Bankruptcy

When filing a Chapter 13 bankruptcy you commit to partially paying off your creditors over a 3 to 5 year period. Unlike Chapter 7, this type of bankruptcy may give you the opportunity to save your home from foreclosure. Chapter 13 will allow you to reschedule secured debts (other than a mortgage for the primary residence). Similar to a debt management service, you would make payments to a Chapter 13 trustee who will distribute these payments to your creditors. While under Chapter 13, you won’t have to directly deal with your creditors.

Many consumers turn bankruptcy, thinking it will be a quick fix. No matter what anyone tells you, bankruptcy is not easy or the best debt solution to getting out of debt. Because bankruptcy can remain on your credit report for up to ten years, you may find yourself restricted from future usage of credit cards and other types of credit. While other debt solutions, like debt management, can help you pay off your debts without the negative impact to your credit report.

Consider Your Options before Filing Bankruptcy

Consolidated Credit Counseling Services has certified credit counselors that can review your financial situation, and advise if bankruptcy is the best debt solution for you. A counselor will perform a comprehensive budget and debt analysis, and make sure that you qualify before referring you to reputable bankruptcy services. Call Consolidated Credit at 1-800-320-9929 to learn more about your debt relief options.