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Personal Bankruptcy - A Fresh Chapter To A Bad Situation

by Philippa Munster

Which way are your finances leading you? Do you direct your financial picture or are your debts telling you how to spend your money? Debt has a funny way of piling up so high that sometimes you're forced to stop and ask how the situation got so out of control. While sometimes you can point the finger at yourself, other times the guilty source is out of your control. At this point, filing bankruptcy seems a lot better solution than remaining at the bottom of the pit.

Bankruptcy is a way to clear away uncontrolled debts. Each state has its own interpretation of bankruptcy laws and Chapters. Some state laws let you keep your belongings while others take over ownership of everything. According to nearly every state, the minimum time that bankruptcy must remain on credit history is seven years. You have no choice but to have this on your credit report during this time. Most lenders will not consider offering you a loan until three years after the bankruptcy verdict.

The laws surrounding filing bankruptcy are very complex. Bankruptcy comes in various forms and follows the laws set in chapters. Most personal bankruptcy is handled under Chapter 7, which discharges or cancels all debts. However, the larger debts such as a home loan must be paid with personal collateral or returned to the creditor. In Chapter 13, you consolidate your debts and make one payment to the court for a set amount of time such as 3 to 5 years. Most people who file Chapter 13 retain their property but must prove that their monthly income exceeds their monthly living expenses. The other common types of bankruptcy - Chapter 11 and 12 - are reserved for corporations and businesses that are closing or reorganizing.

Many people assume filing a Chapter is a simple and convenient way to get rid of burdensome expenses. So, why don't more people file bankruptcy? Quite simply, your credit is ruined. For a long time after the bankruptcy verdict, your bad credit follows you around like a dark cloud. Every time you file for a loan, your credit report
thunders, "Beware!" and banks won't look twice at you. Even when a creditor eventually offers you a loan, you can expect to pay the highest insurance rates, premiums and interest rates. In many situations, you'll have to take out a second loan just to cover the down payment on the initial loan.

While some people might not find that such a bad deal, these situations often spiral you farther into trouble. Rather than risking these bad offers, you should hold off a few years for your credit history to improve and then approach a
better creditor.

Consolidating your loans and debts isn't always a bad move; however, these offers should be carefully reviewed. Numerous reports online through the Federal Trade Commission (FTC) discuss bad debt-counseling practice and counseling firms that work better than filing Chapter 13. To read more reports and to information about side stepping bankruptcy, visit the American Bankruptcy Institute.

About the author:

Philippa Munster

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