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Bankrupty conundrum: Should you file?

The last thing you ever thought you'd be considering is going through bankruptcy. However, with your finances extremely tight and your mortgage falling behind, you want to do anything you can to save your home and the work you've put into building a life for yourself.

The reality of a bankruptcy isn't that it will make you start over. Instead, you'll have exemptions and a way to get back on your feet financially. Not everything about a bankruptcy is easy, but it can help you immediately if you do decide to file.

Doesn't bankruptcy ruin your credit?

The likelihood is that your credit is already damaged because of the financial situation you've found yourself in. If that's the case, filing for bankruptcy isn't going to make it significantly worse. In some cases, it can even make it better by helping you get back to a place where you're making payments on time and not falling behind on bills.

What doesn't bankruptcy eliminate?

Bankruptcy has its limits. Most kinds of bankruptcy won't eliminate government debts, child support or alimony responsibilities, student loans or the debts from expensive items you purchased just before filing for bankruptcy (that includes vehicles, homes, jewelry and other items of value).

Are there different kinds of bankruptcy?

Yes. There are two primary kinds of bankruptcy used by consumers including Chapter 7 and Chapter 13. Chapter 7 bankruptcy is the most common and probably what you think about when imagining bankruptcy. A Chapter 7 bankruptcy means that you will have to allow the court to sell the majority of your assets, but there are exceptions. The sale helps pay back as much of your debts as possible while eliminating the remainder of what you owe. This usually stays on your record for up to 10 years.

Chapter 13, on the other hand, sets you up on a long-term payment plan. It's three to five years in length and helps you pay back a portion of what you owe over that time. At the end of the bankruptcy, all remaining qualified debts are discharged.

These two kinds of bankruptcy aren't the only kinds that exist, and different circumstances could call for a variety of solutions. Bankruptcy could be the right option for you, but don't forget that there are other alternatives such as negotiating your debts and consolidating them to make your payments smaller in the future.

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