Sometimes, people find that their debt is more than they can handle. They have tried to increase their income and work with the creditors to lower the overall monthly payments. Unfortunately, they are not able to make much head way. If the condition continues, they will be in a perpetual debt prison and there’s no escape. When things are bad enough, judgment creditor places a lien on our property, such as our current home and 25 percent of our monthly pay is garnished. When it’s not enough, the creditor may even attach our bank accounts. In this situation, we may feel like in a complete financial turmoil. It is important to make sure that we are able to get out of this situation. If we get deeper into debt, no matter what we do; it’s a good thing to consider filing for bankruptcy. Our concern is usually whether bankruptcy will have a bad effect on our credit score. However, we should be realistic. When we are considering to file for bankruptcy, it’s very likely that our credit score is already quite horrible. It’s true that regaining credit score is difficult after bankruptcy and interest rate will be higher. But this could be our only solution. We need to go deeper to prevent ourselves plunging even deeper and we will be in an even worse situation. Because bankruptcy is crucial, we should hire legal counsel. Bankruptcy laws are also quite complex and we should have an attorney who is comfortable in this area.

There are different chapters of bankruptcies that we should know. For personal bankruptcy, Chapter 7 and 13 are used. Chapter 13 is used if we have a plan to pay back our creditor and debts must be paid off within 5 years, since the filing process. Chapter 7 is for people with more serious financial situation. In this case, people no longer have valuable assets that can be used to repay their creditors. When filing bankruptcy, people would be asked to attend counseling sessions, which can be performed directly or over the phone. After the bankruptcy petition is filed, the court will determine a schedule for hearing. During the hearing, the person will meet a bankruptcy trustee. The trustee will question the person under oath about the petition statements and their overall assets. The trustee is tasked to collect as many as assets from the person, to pay off the creditors. During this situation, it is recommended that the person is accompanied by a legal counsel. We should also know that there are some debts that we can’t discharge in a bankruptcy filing, like student loans and specific types of taxes. However, bankruptcy should allow us to deal with most debts. We could also obtain reaffirmation agreements. When we reaffirm a debt, we simply promise that we will continue to pay the creditor until our debt is paid off. However, our reaffirmation must be approved and our loan shouldn’t a hardship. Depending on the area, we could be allowed to retain a percentage of equity in our home.

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