Bankruptcy: Is It Right For You?

If the court decides that the debtor is bankrupt--and this is subject to the assessment of a judge and/or informal arbitration -- the debtor's assets will be sold off to satisfy his unsecured debts. Even if the debts are not paid in full after selling off all relevant assets, the debts will still be forgiven upon foreclosure, upon application of the debtor's previously discussed properties.

For a variety of reasons, this should be avoided. The 2005 passage of changes to the bankruptcy code now forces those filing to list each asset’s replacement value instead of, as before, salable value. This means household goods and family heirlooms are now at risk of seizure. Furthermore, after the recent legislation, it is harder than ever to successfully attain Chapter 7 protection since the courts must look at the filer’s income (from an arbitrarily defined period three months before declaration) and compare it to the average income of his or her state of residency. Debtors who do not qualify are now put into the Chapter 13 debt reorganization program which still requires them to pay back the majority of their debts, but under the watchful eye of the trustee and with exactly the same negative credit repercussions as bankruptcy.

Bankruptcy should be considered only as a last resort. The effects of filing for Bankruptcy protection are long-lasting - up to 10 years in certain states. Recently the rules for filing Bankruptcy changed, and it is now harder than ever to wipe the slate clean.

To learn more about bankruptcy and bankruptcy alternatives, please visit Total Debt Reief.