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Personal Bankruptcy Explained

No matter the reason, personal debt problems can be devastating. They can lead to depression, feelings of guilt, shame, anxiety, and problems with relationships. Also, these debt issues often result in individuals feeling the need to hide and even lie about money. At the very worst (or perhaps in some circumstances, the very best), personal bankruptcy may be a debt relief option to consider.

It’s usually true that debt issues are a result of errors in judgment combined with unexpected life situations. According to the latest statistics, medical bills still remain the greatest reason for seeking debt relief in the bankruptcy courts. Most consumers go along living while utilizing income to provide for both needs and wants. In addition, credit is pervasive in today’s world. Families and individuals borrow for cars and homes, and extend credit in the form of credit cards, utility and insurance agreements and more. It’s too easy to slip into a place where monthly expenses and debts use up or exceed the household income. A tight budget can result from living too close to the line, not planning carefully, and not saving sufficiently.  In addition, over obligating through reliance on credit provides a false sense that things are OK. And this goes on until the day that someone is diagnosed with a life changing illness, one working party loses a job, a divorce ensues, or something as small as the breakdown of the dryer can cause the final setback. When this day comes, and no more lines of credit use are available, debtors are faced with the worst of possible outcomes. This is the collision of errors in judgment and life.

So what to do and where to go if this is reality? When all remedies are exhausted, such as borrowing from family, refinancing a home and getting part time work, some may find that turning to one or the other forms of personal bankruptcy makes sense. After struggling with debt and all of its negative effects for so long, many consumers have found that the legal remedies can provide emotional relief and the opportunity to start fresh. It’s best to visit first with a reliable financial coach or counselor who can talk through the options and alternatives for consideration.

If personal bankruptcy seems the best solution, there’s still a need to understand the types of personal bankruptcy available, how they each work, and what the requirements are ahead of actual filing.

So here are some important things to know:

– There are two kinds of personal bankruptcy in simple terms

Chapter 13 (repayment or wage earners plan) – a consumer must have income to participate in this plan in order to repay the debt

Chapter 7 (discharge or liquidation plan) – assets may be sold in order to repay debts

– Personal bankruptcies are handled with an attorney and the rules and processes are laid out in laws promulgated under the US Treasury Department, U. S. Trustee Program

– Filing either form of personal bankruptcy requires that the consumer work through an approved credit/education organization to receive per-approval counseling and post filing education. The lists of the approved organizations are also housed on the Trustees page noted above.

– Credit ratings will most likely take a hit with either form of personal bankruptcy; but think about it, when debts are unpaid, usually the credit rating is already impacted negatively

– The emotional relief provided through personal bankruptcy may be all that’s needed to once again garner the energy to face life’s challenges and opportunities.

Although bankruptcy has never been considered the best option a family or individual might pursue to resolve debt problems, balancing the holistic needs of the family is the most important consideration of all. Above all, have health – personal, emotional, spiritual and financial. Be well and flourish.

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