Submitted by Rachel R on Fri, 02/15/2013 - 6:32pm
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Many people struggling with debt just keep treading water without realizing there is a way to get a fresh start. The easiest river to drown in is denial. Often the day to day tasks of working, paying bills, feeding your family and taking care of the minutiae of life trap you in a rut and there’s no opportunity to consider the bigger picture – no spare moments to wonder if there’s a better way. If this describes you, let me offer an onlooker’s perspective: if you don’t get control of your debt, your debt will always control you. That’s how to think about bankruptcy – not as a surrender, but a solution.
There are two types of personal bankruptcy, each with its own benefits and downsides. There’s Chapter 13 and Chapter 7. Chapter 13 is debt reorganization while Chapter 7 is complete relief. If you are overwhelmed with debt, Chapter 7 may be preferable and is the one I will focus on.
Here are five benefits of filing Chapter 7 bankruptcy:
#1 You’ll Get Immediate Relief. As soon as you file bankruptcy, by law, all credit collections efforts cease. For any bill collectors that call, you only have to tell them you’ve filed and give them the case number and they are prohibited from calling back. This can be a huge relief if you’ve been dodging phone calls, sending collectors to voice mail and get a panic attack anytime the phone rings. You can handle any collection letters you get the same way – just write “in bankruptcy” and the case number and mail it back. You shouldn’t hear from them again – if you do, they’re breaking the law and can be punished.
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#2 You’ll Have Unsecured Debt Eliminated. All unsecured debts are rolled up in your bankruptcy and dismissed. Credit card debt, personal loans and any other debts that don’t have collateral (except for student loans) are automatically eliminated. This is your opportunity to get free of any and all old bills that may be lurking – old medical bills, overdue magazine subscriptions, closed accounts in collection from utilities, cell phones or any unsecured debt outstanding. Student loans aren’t automatically included, but you may be able to get them modified or discharged by filing an adversary complaint.
#3 You May Be Able to Keep Your Home. You may think if you file bankruptcy, you’ll automatically lose your home, but nothing is further from the truth. If you are current on your mortgage payments, or can get current, and don’t have much equity in your home (after the homestead exemption is calculated), you may be able to keep your house. The amount of equity that will trigger a sale differs by state. If you have lots of equity, more than your exemption covers, the trustee may opt to have it sold and the proceeds after your mortgage is paid off distributed to your unsecured creditors.
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#4 You May Be Able to Keep Your Car. A couple of factors determine whether you’ll be able to keep your car. If you own it free and clear and it’s worth a lot (a paid off late-model Lexus for instance) the trustee may require it to be sold. If you have a car loan and are current on payments and don’t have a lot of equity in the car (book value minus loan amount), the trustee will likely not be interested in it. You’ll have to talk to your car loan provider and get them to agree to let you keep the car after the bankruptcy so long as you keep making payments. You may have to sign a new loan agreement that covers the bankruptcy.
#5 You Will Get a New Lease on Life. Struggling with debt can make you feel hopeless. Your kids may be going without or you may be living paycheck to paycheck with little in the pantry. Still others that file for bankruptcy have food on the table, but no sense of financial security. In either case, you are likely stressed not only by your current financial situation, but also about your future. If you can’t pay your bills, you’re likely also not saving for a rainy day or retirement. Chapter 7 gives you a fresh start not only for today, but for the rest of your days.
If you are overwhelmed by debt and think there’s no way out, think again. Filing bankruptcy is not giving up on yourself or your debt – it’s simply an acknowledgment that you need help. If you’re in debt and struggling to make payments, contact a reputable, qualified bankruptcy attorney to discuss your situation and your options.
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