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Bankruptcy

IF YOUR DEBTS are too large to pay down and creditors are unwilling to forgive enough debt to make it manageable, you may need to file for bankruptcy. This isn’t a step to be taken lightly. The bankruptcy will stay on your credit report for up to 10 years, and you will likely have little or no access to credit for a number of years.

If an individual files for bankruptcy, it’s typically under either Chapter 7 or Chapter 13 of the bankruptcy code. With a Chapter 7 bankruptcy, your assets can be liquidated to pay off unsecured debt. In practice, any assets owned are often protected and thus nothing gets sold. Meanwhile, with your secured debts, such as your auto loan that’s backed by your car or your mortgage that’s backed by your home, you can either turn over these assets to the lenders involved or try to strike a deal where you keep the assets in return for making some sort of payment.

While a Chapter 7 bankruptcy deals with your debts through liquidation, a Chapter 13 bankruptcy tackles your debts through some form of payment plan. Chapter 13 bankruptcy is designed for those with regular incomes, who are then expected to complete a monthly payment program that lasts three to five years. How much you will be expected to pay will depend, in part, on how much you earn and how much you owe.

If you file for bankruptcy, you’ll need an attorney’s help. You can search for lawyers through NACBA.org, the website of the National Association of Consumer Bankruptcy Attorneys. Also check out BankruptcyResources.org and Nolo.com.

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