Personal Bankruptcy Filing Information and Alternatives

At Debt Freedom Tips, we consider a personal bankruptcy filing to be a worse-case scenario for debt relief. While a bankruptcy filing is the most comprehensive means for debt relief, it comes with many substantial setbacks. Debt Freedom Tips strongly recommends that you consider other debt relief services prior to making a personal bankruptcy filing. This web page will discuss why personal bankruptcy is a worse-case scenario, and the bankruptcy alternatives available to you.

What is a Bankruptcy Filing?

Personal bankruptcy generally is considered a debt relief option of last resort, your worse-case scenario. Bankruptcy results are long-lasting, placing a significant negative impact on your credit rating from 7 to 10 years. Individuals following the personal bankruptcy rules will receive a discharge. A bankruptcy discharge is a court order that states that the individual does not have to repay certain debts.

There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each bankruptcy type requires a federal bankruptcy court filing. As of April 2006, the bankruptcy filing fees were set at $274 for Chapter 13 and $299 for Chapter 7. Attorney fees are separate, and may vary.

Beginning October 2005, Congress made considerable alterations to the personal bankruptcy filing laws. The focus on these changes was to give consumers more incentive to seek bankruptcy relief under Chapter 13 rather than Chapter 7. Chapter 13 allows people with a steady income to keep real property, such as a home or a car, which they could otherwise lose through a Chapter 7 bankruptcy. Through Chapter 13, the court approves a debt repayment plan that allows you to use future income to pay off debt during a three-to-five-year period, rather than surrender any property. You then receive a discharge of your debts after you complete the repayment plan.

A Chapter 7 bankruptcy is known as "straight bankruptcy", and involves the liquidation of all non-exempt assets. Exempt property may include vehicles, work-related tools, and basic household items. Some of your property may be sold or turned over to your creditors by a court-appointed official. These new bankruptcy laws have also changed the time duration which you can receive a discharge. You now must wait 8 years after receiving a discharge in Chapter 7 before you can file bankruptcy again under that chapter. The Chapter 13 waiting period is much shorter and can be as little as two years between bankruptcy filings.

Both types of personal bankruptcy may resolve your unsecured debts, stop foreclosures, repossessions, garnishments and utility shut-offs. They will also reduce debt collection activities against you. Both also provide exemptions that allow people to keep certain assets, which varies from state to state.

Note that personal bankruptcy usually does not erase alimony, fines, child support, taxes, and some student loan obligations. Also, unless you have an acceptable debt repayment plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property under an unpaid mortgage, or with a security lien on it.

Personal Bankruptcy Filing - The Good, The Bad and The Ugly

A personal bankruptcy certainly has its place, and for many people it is the best debt relief solution. However contrary to popular belief, bankruptcy does not simply wipe away all of your debt, allowing you to start over. Even with a personal bankruptcy filing, you will be required to repay as much debt as you are capable of paying, and you could still lose your home, cars, and other liquid assets. In addition, you will have a lingering and significant negative mark on your credit report which will impact your ability to borrow money, the interest rate offered to you, and in some cases your ability to get a job.

A bankruptcy is an ugly affair that does not fix everything, does not reduce all debt, and could haunt you for up to a decade. Both the government and private industry consider bankruptcy as your last alternative, and other debt relief solutions must be considered, or even tried. Enrollment in a bankruptcy alternative program will not prevent you from a personal bankruptcy filing at a later date.

Alternatives to a Personal Bankruptcy Filing

Surprisingly, there are plenty of bankruptcy alternatives! If you are struggling to pay your bills, but your financial situation is not "severe" then your best option is to take action yourself and find ways to cut costs, manage money, or even increase your income. This may seem easier said than done, but no one is saying it will be easy. But the reward of financial independence, debt freedom, is very sweet.

If your financial situation is dire, and you can no longer pay your bills or have even missed paying some bills for several months, then you should consider seeking professional help.

• Credit Card Debt Relief [credit cards, gas cards, retail cards]
  Debt relief options include Debt Settlement, Credit Counseling, Bankruptcy.
• Miscellaneous Unsecured Debts [medical, unpaid utilities, personal loans]
  Debt relief options include Debt Settlement, Bankruptcy.
• Tax Debt [IRS, State]
  Debt relief options include Tax Relief.
• Mortgage Loan Debt [home loans]
  Debt relief options include Loan Modification.

The current economy is tight for those doing well, and dire for everyone else. Before succumbing to the worse-case scenario, bankruptcy, there are many options to help reduce debt and become debt free. Inaction is not a solution, and will only make your situation worse.