A debt solution like bankruptcy should really only be used as the last possible solution. The problem with this solution to debt problems is that it involves much more than simply eliminating debt. When someone files for bankruptcy, all debt collection actions against that person are prevented. The court grants an “automatic stay” which, with some exceptions, means that creditors cannot claim the money they are owed.
The most important exception is that when a loan is secured by property, creditors can request relief from the forbearance and sixteen of that property. The other exceptions are student loan debt, alimony, child support, and taxes. The flip side for the person seeking this solution to eliminate her debt is that he must surrender all non-exempt property. This property is then sold and the proceeds distributed among the creditors.
There are two types of this solution of your debt problems:.
Chapter 7
which states that a person must surrender much of their property, but creditors cannot claim damages for additional income.
Chapter 13
It allows a person to keep most of their income, but they have to make a plan to pay off the debt to creditors based on their future income. Under this plan, the court can require people to live within a very strict budget.
As you can see, there are downsides to both debt elimination plans. One of the biggest drawbacks is that both debt cancellation plans will have a significant impact on a person’s credit rating. For this reason, declaring bankruptcy is a solution to your debt problems that must be evaluated very thoroughly and
carefully. Other debt solutions like debt negotiation, debt counseling, and debt consolidation should definitely be considered first.