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Considering the far-reaching effects of bankruptcy - social stigma, lowering of Fico scores, ruinous notations upon credit reports for up to a decade - too many borrowers don’t even bother investigating the bankruptcy option until it’s too late. Important as it is to avoid bankruptcy while another alternative like debt settlement exists, anyone with credit-card bills or mortgage payments - or anyone facing potential medical bills or sudden unemployment; anyone, really - should know exactly what bankruptcy means and what the different options entail.

For our purposes, Chapter 9 (a form of municipal reorganization; it’s generally for governmental utilities though, in the best known example, Orange County, California was forced to declare Chapter 9 in 1994 to adjust debt-load), Chapter 11 (a corporate plan that lets business owners maintain control of their company while re-structuring debts and promising to re-pay some bills through future earnings), Chapter 12 (similar to Chapter 11 but solely concerning the re-organization of the business debts of so-called family debts and family fishermen) and Chapter 15 (a plan for corporate re-structuring for foreign companies doing business within the United States) will be avoided in this article. Consumer debts, though a tiny fraction of individuals do file Chapter 11, are overwhelmingly drawn to just two aspects of bankruptcy protection.

Chapter 7, what most people simply think of as bankruptcy, eliminates all unsecured debts (leaving aside mortgages and car loans presuming the assets aren’t above a certain value minus the debt balance; this varies state to state) with a few notable exceptions. Income taxes owed for more than three years, child and spousal support, virtually any type of student loans, and any court-mandated restitution for criminal proceedings - all of these are considered un-dischargable by the government and, if they take up a decent percentage of the consumer’s debtload, they likely won’t qualify for Chapter 7 protection. Even in the best possible situation, though, the court trustee is authorized to sell most of the filer’s personal property to repay creditors, and the bankruptcy will be recorded upon the debtor’s credit for up to ten years with often disastrous consequences. Many employers ask if the potential job applicant has ever filed for bankruptcy.

Bad as Chapter 7 bankruptcies may be (with the debtor facing the loss of a lifetime’s possessions and future credit troubles from the bankruptcy designation), they’re still, by far, the option of choice by those forced to declare. Despite the ruinous long-term effects, at least most unsecured debts would be eliminated. Unfortunately, after the changes in legislation with 2005’s Bankruptcy Abuse Prevention & Consumer Protection Act, it’s far more difficult for borrowers to even quality for Chapter 7 protection. With the new ‘means test’ forcing filers to earn less than arbitrarily-determined living expenses after the repayment of debts (and potential sanctions, including fees to reimburse court costs, for attempting to file for Chapter 7), many debtors avoid the option entirely if they’re not sure their income’s low enough or don’t want to risk losing their property.

Chapter 13 bankruptcies, though, aren’t nearly the same as Chapter 7’s. They’re intended to be less of a debt liquidation than a court-arbitrated structuring of debt-loads that more closely resembles corporate re-organizations. Debt balances aren’t eliminated; instead, the trustee presents a three to five year payment plan to creditors wherein at least half of the debts are still repaid. Depending upon the specific finances of each debtor, it’s possible the courts could determine that the borrower’s responsible for the entirety of his debts while still facing the effects upon credit report and FICO score of filing for bankruptcy!

It’s never been as easy to declare bankruptcy as the media has made it seem, but, these days, many borrowers try anything possible to avoid Chapter 7 or Chapter 13 bankruptcy protection. Considering the lingering negative credit repercussions and potential loss of property, the Chapter 7 can have traumatic effects to even those ‘lucky’ enough to qualify while, though they’ll still be forced to live under the court-decided budget, a Chapter 13’s no longer any guarantee of debt liquidation. For these reasons, more and more Americans are investigating debt settlement as an increasingly-popular technique to avoid the pitfalls of bankruptcy. Up to half of consumer debts are still liquidated but without the same stigma as bankruptcy nor risk of possession’s being attached by the government. Certainly, it’s something that everyone facing spiraling debt-load should consider as an ever-more-realistic alternative - another chapter, really - of the fight against debt.

To learn more about the alternatives to bankruptcy visit this Debt Relief service at http://www.debtrelief.us.com

Article Author :Cole_Collins

Tags: tax, Debt Relief, mortgage payment, debts, student loan

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Tags: Bankruptcy, Debt Relief, debts, Loans, mortgage payment, repayment, student loan, tax