The Consumer Law Center

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Bankruptcy

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Bankruptcy
Sometimes bankruptcy is the right option for getting out of debt. However, it is a significant step and should be considered a last resort. Bankruptcy can be invasive, expensive and may affect your credit for up to 10 years.

Bankruptcy could be an effective way to resolve your overwhelming debt. Chapter 7 bankruptcy gets you out of debt faster than any other debt relief option and chapter 13 bankruptcy lets you hold onto your major assets. Filing for bankruptcy also stops all collection activity from your creditors.

Sometimes, filing for bankruptcy may do more harm than good:

Debtors can leave bankruptcy court with heavy financial obligations due to court and attorney fees.

Assets such as homes and business may sometimes be taken for payment.

You have to explain yourself to a judge and to some creditors, which can be invasive and embarrassing.

Defaulting on a Home Equity Loan could cause you to lose your home or the collateral you pledged.

Bankruptcy remains on your credit report for up to 10 years and it may be very difficult to get a loan, even after the bankruptcy is over.

A recent bankruptcy law revision makes it more difficult to file chapter 7 bankruptcy, which is the chapter that gets rid of your debt. As a result, many bankruptcy filers file chapter 13 bankruptcy, which is essentially a repayment plan like you would find with a consumer credit counseling program. Chapter 13 bankruptcy allows you to repay your creditors a reduced amount with a lower interest rate through a repayment plan approved by a bankruptcy court. Unlike chapter 7 bankruptcy, it lets you keep valuable assets, such as your home, but may also involve expensive legal fees.