Those who cannot pay off their debts within the next three years while maintaining a reasonable standard of living should seriously contemplate filing for bankruptcy. If you fall into this category, you will have a very difficult time paying off your debts on your own absent an abrupt and significant increase in your income.
Too frequently, people use bankruptcy as a last resort, but they end up worsening their financial situation in the process. For instance, you may take out a home equity loan to pay off your credit card debt and avoid filing Chapter 7 bankruptcy, but after a couple of years, you discover that you are still mired in a mountain of credit card debt. Perhaps you were irresponsible with your spending and accrued a substantial amount of consumer debt even after obtaining a home equity loan.
Or perhaps an unexpected circumstance prevented you from using the entire loan to pay off your debts. In any event, it is not uncommon for a family that takes out a home equity loan to pay off credit card debt to still be in debt a few years later. The difference is that a home equity loan has placed your home in jeopardy, whereas bankruptcy will not eliminate this type of loan. As you can see, some individuals go to great extent to avoid bankruptcy, but end up worsening their financial circumstances.
So what are the advantages of declaring bankruptcy?
Filing for Chapter 7 bankruptcy will provide immediate relief from your debts. Once you file for bankruptcy, creditors cannot contact you, and the court can stop pending litigation, IRS seizures, foreclosures, repossessions, and evictions (as long as a state court has not yet entered a judgment or eviction).
Obviously, the greatest advantage of submitting Chapter 7 is that your debts can be completely discharged. This type of bankruptcy is known as liquidation because you are required to sell your assets to pay off as much of your debt as feasible. However, the majority of chapter 7 bankruptcy filers have few assets to begin with, and their residences are typically protected by state homestead exemption laws.""
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