Debt Relief Option #4: Bankruptcy

There are two different types of bankruptcy for consumers; chapter 7 and chapter 13. Recently a new bankruptcy law passed that requires consumers to take a state means test to determine which bankruptcy you qualify for. If it's determined your income is above the state means (average), you would most likely qualify for a chapter 13 bankruptcy. In a chapter 13 bankruptcy, you would be set up with a trustee of the court, and required to pay back roughly 30-70% of your debt, depending on your situation.

Most people consider Bankruptcy as an absolute last resort for debt relief.

Benefits of Bankruptcy

Among the benefits of bankruptcy include the chance that you can save your home from foreclosure (if it's at risk). Also, for consumers that have been receiving collection calls as a result of not making payments, bankruptcy can put a stop to the calls.

Risks of Bankruptcy

Risks associated with this debt relief option are limited.

Downsides of Bankruptcy

The disadvantage of personal bankruptcy is that a record of the bankruptcy stays on your credit credit record for up to 10 years, and stays on your public record for life. While it's on your credit record (7-10 years) , it will be more difficult to get loans from lenders. Additionally, even after the bankruptcy is off of your credit record, the fact that it's on your personal record means for the rest of your life, any time you apply for a new job, or for credit, if you are asked if you have ever filed for bankruptcy, you are required by law, to say yes. And doing so, can have a negative effect on your chance for the job and for approval for loan applications.