Declaring bankruptcy is a formal and legal request that the courts provide protection for a person and negotiate a resolution for their debt, as they are unable to meet the obligation they entered into in taking on the debt. Of all the bankruptcy pros and cons, the con of the years following a bankruptcy being difficult is one of the most significant. A person will be effected by a bankruptcy appearing on their credit report and therefore bankruptcy is not necessarily the answer to managing debt or credit but sometimes it really is the only option.

Chapter 13

Chapter 13 is one of the many forms of bankruptcy listed under the US Bankruptcy Code. This is a restructuring of a person’s debt into a schedule that is more closely matched to his or her current ability to pay the debt. There are many criteria that need to be met to be able to file a chapter 13 such as if secured debt is less than the legally prescribed amount (at one point around $750,000), and unsecured debt is less than the prescribed amount (at one point around $250,000). Also the debtor might have to prove things such as having steady employment or income, and the debt would be scheduled for pay off in 3 to 5 years. Criteria for each state and country could differ so check with your local agencies.

Chapter 7

The US Bankruptcy Code also includes a Chapter 7 which is a more straight forward form of bankruptcy. The debtor gets a chance to start over with this type of bankruptcy. This form is generally used by most consumers in the US. Chapter 7 Bankruptcy will eliminate most but not all of a consumer’s obligations. Obligations which must still be met include: government and student loans, child support, FICA obligations for employees, unpaid income tax, alimony payments, and income tax withholding for employees. Under Chapter 7, some of a debtors assets can be retrieved from the debtor to fund some of the debt, however some assets are protected. Things such as social security and disability payments, some personal property, control of own home or residence but with the possibility of limitations and pension and retirement benefits. You must check with your local agencies as to the rules that apply in your state or country.

Bankruptcy Pros And Cons

Bankruptcy is virtually a no go zone anywhere you look, everyone will tell you not to do it, it’s a last resort. There are some pros and cons that you can consider to make your decision. The basic cons of course are that your credit record will be damaged significantly and you could struggle to get any credit extended to you in the future. One of looking at this though is whether you will get credit extended anyway based on your current situation. How bad is your credit record gotten? A Chapter 13 requires you to make repayments that could go on for years yet your credit record will still be badly damaged. You really need to think about what is best for your situation and what the likely outcomes are on your ability to get credit in the future under each scenario. When people do this they realise that their chances of getting credit in the future is bad anyway. Of course it will be much more difficult having had a bankruptcy but is it so bad that you can’t get to credit that got you into this problem in the first place?

Do your research and get a good understanding of what the consequences actually are, not what everyone wants you to believe.