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Bankruptcy

Bankruptcy should always be a last resort! However, if you feel its the only option available to you, here's everything you need to know.

Personal Bankruptcy

What is a Chapter 7 Bankruptcy?

Bankruptcy is one of the many debt relief options available to consumers struggling to achieve financial stability.

 

Chapter 7 is a liquidation bankruptcy designed to wipe out general unsecured debts such as credit cards and medical bills. In order to qualify, the debtor must have little to no disposable income. If the individual's income is too high, they would more than likely be required to file for a Chapter 13 bankruptcy.

Filing for a Chapter 7 Bankruptcy liquidates properties & assets to pay off "some" debts and absolves the filer of any remaining debt obligations. When a debtor files for Chapter 7, a trustee is appointed to administer the case. After reviewing the paperwork and supporting documents, the trustee designates which nonexempt assets will be sold to pay back creditors. If the debtor has no nonexempt assets or properties to sell the creditors will in turn receive nothing. As a result, those that benefit most from a Chapter 7 filing are individuals with low income or little to no assets.

 

However in 2005, the US government mandated an overhaul of federal bankruptcy laws aimed at encouraging consumers to file Chapter 13 filings. This is significant due to the fact that it forces consumers to sign onto debt-repayment plans in exchange for keeping certain assets and altogether eliminated an era of leniency towards Chapter 7 filings.

The overhaul of federal bankruptcy laws included the introduction of a "means" test. The introduction of the means test was designed to separate those would could afford to repay their debt from those who couldn't. In essence, since these regulatory changes were passed anyone that cannot sufficiently pass the means test (meaning they can at least pay back a portion of their debt after it is restructured) can no longer file for a Chapter 7 bankruptcy. These changes were really designed to make it much more difficult for people eliminate their debt scot free by utilizing a Chapter 7 filing.

What is a Chapter 13 Bankruptcy?

Commonly referred to as a reorganization bankruptcy, Chapter 13 is designed for debtors who can pay back at least a portion of their debts through a repayment plan and restructuring. If an individual cannot satisfy the means test and has too much disposable income for a Chapter 7 bankruptcy, the individual would most likely have no choice but to file for a Chapter 13. However, Chapter 13 bankruptcy offers some benefits that Chapter 7 doesn't. For example, with a Chapter 13, an individual has the ability to catch up on missed mortgage payments or strip wholly unsecured junior liens from a house. 

In a Chapter 13 bankruptcy, the debtor gets to keep all of their assets/property (which includes nonexempt assets). In exchange, the individual pays back all or a portion of their debts through a structured repayment plan (again the amount they must pay back is dependent upon their income, monthly expenses and debt type).

Reasons You Should Avoid Bankruptcy

  • Impact To Credit Worthiness - Filing for any type of Bankruptcy will leave your credit score and credit report in the dumps for a long time. The Bankruptcy will stay on your credit report for 7 to 10 years and you will be viewed as un-lendable in the long term.

  • Public Record - Any bankruptcies that are filed become public record. So anyone that conducts a background check can see that you've filed for bankruptcy (Employers, landlords, etc.)

  • Property Loss - You may lose property that you own that is not exempt from sale by the bankruptcy trustee.

  • Expensive - Filing for bankruptcy is costly and far from free. In order to correctly process the filing you will need a decent attorney (which tend to be quite expensive).

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The Debt Relief Company is not a lender and does not assume the responsibility of a consumer's debt obligations. Clients that enroll in the debt relief program with The Debt Relief Company and make all monthly payments in a timely fashion pay approximately 65%-70% of the enrolled debt amount (including all fees and associated costs). These figures are based on conservative estimates and The Debt Relief Company's servicing fee of 20% of the enrolled debt amount. Available program terms range from 12-48 months. Not all clients who enroll with The Debt Relief Company will complete The DRC program. The Debt Relief Company cannot guarantee percentage reductions for our debt resolution services and the timeframe in which they are achieved. The Debt Relief Company does not provide clients with legal, tax, bankruptcy, accounting or investment advice. The use of our debt relief services and your participation in the debt relief program will likely affect your credit worthiness. We do our best to provide clients with realistic and conservative financial goals, however if you miss program payments it will likely impact your ability to become debt free and pay off your credit card accounts within the estimated timeframe.

The Debt Relief Company Program is not available in all states across the United States and some debt accounts are not eligible to be included in The DRC program.

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