Bankruptcy - Last Resort

Reach for Help Before You Drown & Take that First Step Toward FINANCIAL FREEDOM NOW!

Avoiding Bankruptcy for the individual who cannot meet his or her debt obligations may be inevitable. A formal declaration of bankruptcy stops the creditor collection process. In the 10-year period from 1994 through 2003, more than 12 million

Americans filed for personal bankruptcy. This is double the number of filings for the prior 10-year period. This is simply a staggering number of bankruptcy filings, and the tremendous increase is likely due to the huge increase in credit card debt as well as rising costs of medical care.


With personal bankruptcy, there are two basic approaches. The most common is called "Chapter 7" and usually involves the full discharge of unsecured debts, so that the debtor no longer owes anything to his or her creditors. The other approach is called "Chapter 13" and normally requires the debtor to pay back a percentage of the debt, usually over a 3-5 year period, on a payment schedule determined by the court. The court decides which system applies, and while most people qualify for the more lenient Chapter 7 procedure, many people are required to pay back part of their obligations under Chapter 13.

Without going too deeply into the technical reasons for this, the difference commonly comes down to how much equity the debtor has in their home or real estate. The bankruptcy laws vary from state to state, and in some states a person is not allowed to keep much equity if they are filing bankruptcy. So, many individuals end up with Chapter 13 to avoid losing their home in the bankruptcy filing.

Whichever system is used, Chapter 7 or Chapter 13, the bankruptcy laws exist for the benefit of the consumer. There's no doubt that some people need the relief provided by bankruptcy. Someone who owes $80,000 in medical bills and only makes $20,000 per year needs the protection of the courts to avoid financial ruin. Bad things sometimes happen to good people, and in our society provision is made for the courts to intervene and help people come to terms with their creditors.

Yet bankruptcy should truly be viewed as a last resort. Many people file bankruptcy just to put an end to creditor collection harassment, when they would prefer to work out a plan to deal with their obligations rather than walk away from them. Unfortunately, there are serious consequences to a bankruptcy filing, including some hidden costs that make it an unattractive option. For one thing, bankruptcy will stay on your credit report for 10 years, and this will definitely have an effect on the interest rates you will qualify for on future mortgages and auto loans.

For example, let's say you purchase a new home after recovering from bankruptcy. The mortgage is $180,000. Your interest rate will probably be two or three points higher than the person who has not filed bankruptcy. While it may not seem like much, the difference between 7% and 9% over the life of a mortgage is huge. That "small" difference will cause your monthly payments to jump from $1,198 to $1,448, and you'll pay more than $90,000 in extra interest as a consequence!

Aside from the financial consequences of bankruptcy, there are personal effects as well. Frankly, even though the shame associated with bankruptcy has diminished in recent years, it still feels like failure to most people. You'll never find a single person who feels pride in having filed bankruptcy. Most people would rather fight their way through financial difficulties on their own two feet, without help from the courts. The pride and self-worth that results from becoming debt-free without bankruptcy is simply priceless.

Working with a professional debt settlement agency like Liberty Financial Management can really make a creditor take notice and offer a larger settlement especially if they know you don't want to use bankruptcy as an option.

During your FREE, no-obligation consultation, we'll analyze your situation and  help you determine the best approach for your circumstances.

Remember the real reason we are here, despite what others may say or think is that we are here to help you settle your debt and rescue you from the pressures and hassles of debt!


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