How to Get Out of Debt - Understanding Bankruptcy

When it comes to getting out of debt, most individuals see bankruptcy as a last ditch option. This is a course of action to be taken only when all other means of managing debt and restructuring an individual's finances have been exhausted and no other choices are available. For the vast majority of individuals, taking care of their financial obligations and paying off their debts never comes to the extreme of filing for bankruptcy protection. Even if an individual has no intention of using bankruptcy protection, it is still a good idea to understand the differences between Chapter 13 and Chapter 7 bankruptcy.

Chapter 13 bankruptcy allows an individual to continue paying off their debts under the protection of a bankruptcy court. Many individuals, even if they qualify for Chapter 7 bankruptcy, choose Chapter 13 simply because they feel that it is the right thing to do. Chapter 13 bankruptcy is also the only type that allows an individual to catch up on missed payments so that they can eventually reinstate the original loan agreement that they had with their creditors. Another benefit to choosing Chapter 13 bankruptcy to handle debts instead of chapter 7 is that an individual who files chapter 13 will always have the option to file Chapter 7 in the future.

Nonexempt property is also a reason for an individual to carefully consider the differences between the two types of bankruptcy proceedings. An individual is only allowed to keep certain property when they file for Chapter 7 bankruptcy protection. The property that they are allowed to keep is known as exempt property. A person who owns a great deal of nonexempt property would have to turn over ownership of that property if they file for Chapter 7. Filing chapter 13, on the other hand, allows an individual to keep the property making it a better option for many.

Another thing to keep in mind when considering whether or not bankruptcy is the right choice is that an individual, unless they have substantial experience regarding bankruptcy law, will have to make use of a qualified attorney. These fees are often due upfront, adding one more financial obligation to an individual who is already in trouble. Navigating through the many intricacies of bankruptcy law can be a difficult and frustrating task in and of itself. Before making this extreme option, a person should carefully consider the alternatives that are available to them.