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What is Bankruptcy?

By: Michael Millington

When dealing with massive amounts of debt, many people view bankruptcy as a last ditch effort to rid themselves of their financial burdens. This is because of the amount of work involved with a bankruptcy and the affect it will have on your financial standing. Filing for bankruptcy has taken on the general feel of giving up. However, while bankruptcy is viewed mostly in a negative light, it does hold benefits worthy of being a valid and feasible form of debt relief. Here is a breakdown of what bankruptcy is and how it affects you.


Types of Bankruptcy

Bankruptcy has many different forms. Those who file for bankruptcy do so under a certain chapter. While there are multiple chapters for various situations (like for businesses and for farmers), there are two chapters of bankruptcy most individuals will file for: chapter 7 and chapter 13. While both of these forms of bankruptcy work towards getting you out of debt, they work in very ways.

Chapter 7 is often referred to as the “liquidation” bankruptcy. Liquidation is used to help pay off what you owe to your creditors. Though there are stipulations to what can be liquidated, generally speaking one has the ability to lose much of what they owe. The stipulations come into play when determining whether the liquidation of certain assets would either cause financial hardship or would not contribute substantially to what needs to be paid off.

Chapter 13 is often referred to as the “restructuring” bankruptcy. In this chapter, your debts are restructured to make payments easier to complete. By filing for chapter 13 instead of chapter 7, you can avoid having crucial assets liquidated. While a part of a chapter 13 bankruptcy, you’ll be required to make payments as per a payment planned agreed upon in court. Failing to follow through with this plan could lead to negative consequences.


Which Chapter is Right for You?

Each chapter of bankruptcy has its own distinct advantages and drawbacks. The main factor that decides what you’re able to file for is your income. If you have the ability to make payments on your debts to a certain amount, you might be more suited towards filing for chapter 13. If you can prove that making payments on your existing debts would cause you certain and immediate hardship, you might have to file for chapter 7.

While financial standing can influence what chapter of bankruptcy you file, other factors can play a role as well. As mentioned earlier, filing for chapter 7 bankruptcy can result in the liquidation of multiple assets (including, but not limited to, your car and house). In order to avoid this scenario, a chapter 13 bankruptcy can be filed. However, in this case you must prove that you’re able to maintain the payment schedule of the bankruptcy.

For many, bankruptcy can be a way to wipe their financial slate clean. Each method of bankruptcy can lead to the same ultimate result: regaining control over your finances. The benefit in each method resides in the financial standing of the individual filing for bankruptcy. Most of your unsecured debt can be wiped away or restructured for an easier payment, granting you the ability to catch up on missed payments or eliminate whole debts altogether.


Detriments to Bankruptcy

Having your unsecured debts wiped away sounds like a wonderful thing, and bankruptcy has the power to do that. However, there are drawbacks. These drawbacks are some of the reasons many view filing as a last resort. While the benefits to filing can be great, the negatives can be even greater, often deterring many from going down this path .

Filing for bankruptcy will put a negative mark on your credit record for a minimum of 7 years. In this time frame it can be difficult to do anything credit related (like open a new credit card or get accepted for a loan). Other forms of debt relief avoid putting such glaring marks on your credit report. This can be a big hindrance for any long term financial plans as well as personal goals. A bankruptcy can limit the types of jobs you can apply to and can generally be an embarrassing situation to go through.

Each chapter has its own detriments when considering whether or not to file. While chapter 7 has the ability to discharge debts in as little as three months after filing, it also puts your belongings at risk to be sold. It also doesn’t have the benefit of catching you up on secured payments (like auto and home payments). Chapter 13 has you pay back your debts to a certain extent. In this manner, debts aren’t always quickly resolved and you might end up paying for 3-5 years.


Bankruptcy can be the saving grace for many who deal with debt. Though the option is tempting, there are many other options available to achieve debt relief. Before deciding on a course of action, consider a free consultation from a debt relief specialist at Guardian Debt Relief. Our specialists are well versed in multiple forms of debt relief and can answer any of your debt relief related questions. Bankruptcy is big step, and there may be other solutions to your debt issues without taking that leap. While our consultation is free, the information you’ll gain will last a lifetime. Take the first step and contact Guardian Debt Relief today.

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