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Bankruptcy: A solution to the problem of debt

As soon as credit cards became part of our society, credit card debt has been a necessary concern. When added to mortgage payments, health crises and unexpected unemployment, credit card debt is only one of many things that can lead a person to consider bankruptcy.

Bankruptcy is sometimes seen as an inherently bad process that destroys credit and creates a haze of negativity that follows a filer for years. In reality, it is a neutral process that aims to help both the debtor and creditor. Chapter 13 and Chapter 7 personal bankruptcy filers are not running from debt -- they are pursuing a solution for their financial problem.

Chapter 7 discharges most unsecured debt and usually allows filers to keep their home and car. Chapter 13 sets up a payment plan over three to five years that is dependent upon the filer's disposable income. For individuals with high income and high debts, Chapter 11 bankruptcy is also available. More frequently used by businesses, it allows for a restructuring of finances.

Many people consider bankruptcy once collectors are knocking on their doors and calling nonstop. For collectors to be involved, payments usually have to have been stopped for some period of time. When a person stops making even minimum payments, their financial situation is likely serious enough to file for bankruptcy.

Bankruptcy offers a person a clean financial slate. With Chapter 7 it is immediate, but with Chapter 13, it takes more time. Regardless, the filer has a chance to start over and make better decisions.

As one expert said, "Debt is the problem-bankruptcy is the solution."

Source: News Times, "What's worse, debt or bankruptcy?" Sybil Blau, Feb. 17, 2012

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