Let’s begin with the understanding that bankruptcy is a “last resort” solution to debt. Bankruptcy has it’s place in the world, but typically we can find a better debt management plan or solution for our customers. Bankruptcy can be emotionally draining and have long lasting and sometimes permanent effects.

If you need help with your debt you don’t have to file bankruptcy because it’s not the only way to get out of debt. Review each debt management plan available.

  • Minimum Payments
  • Debt Consolidation
  • Credit Counseling
  • Debt Dismissal
  • Debt Settlement
Remember that Bankruptcy:

  • Is not an easy way out
  • It often times does not actually get rid of all your debt
  • You might have a monthly payment in Bankruptcy
  • Is a serious decision, personally and financially

It’s important to know how to qualify for bankruptcy, the effects and consequences, and understanding the different types of bankruptcy.



Debit Management Plan

Types of Bankruptcy

For individuals there are mainly two (2) types of bankruptcy. There is Chapter 7 and there is Chapter 13 bankruptcy, each having some major differences.

Chapter 7 Bankruptcy

Chapter 7 Bankruptcy is considered a “total bankruptcy” where unsecured debt is discharged or eliminated by the court. It’s what most people think about when they hear bankruptcy, but be very aware, it’s not what everyone gets when they file.
Chapter 7 Bankruptcy:

  • Will discharge most unsecured debts.
  • Property and assets may be sold to pay off the debt
  • Remains on your credit report for 10 years
  • Bankruptcy stays on public records forever (background check, county records)

Will I be forced to sell all my property and assets?


You may have to sell property of assets to satisfy the debt. Generally, you’ll be required to give up excess cash in a bank or savings accounts, musical instruments (if you’re not a musician), coins and collectables, stocks, bonds, second home or car.
The biggest question is always “Do I have to give up my home?” Again, this isn’t black and white. If there is significant equity in your home and it isn’t protected by your states laws or homestead, then a trustee may require a sale and use the proceeds to pay off the creditors. If there isn’t any equity and your home is underwater, then there aren’t any proceeds to pay off your creditors so it won’t be sold. It also matters whether or not you are current on your mortgage payments because if you are behind you may end up losing the home to foreclosure.
If there is any property you absolutely can not or do not want to live without, see if you can avoid bankruptcy. You may also want to speak with a local bankruptcy attorney to ask specific questions or advice.

Can Anyone file a Chapter 7 bankruptcy?


No, it isn’t like it once was where everyone filed Chapter 7 because in 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act was passed which created the means test.
The means test uses your household income and compares it to the median income in your state with the same household size. If your income is below this number, you pass the means test and will qualify for a Chapter 7 bankruptcy. If your income is above this number, you fail the means test and may have to file a Chapter 13 Bankruptcy.

Chapter 13 Bankruptcy

A Chapter 13 Bankruptcy is a reorganization debt management plan that allows repayment of debt within a 3 to 5 year time frame. In many cases, a Chapter 13 Bankruptcy will require repayment of 30 to 70% of the debt back through a court appointed trustee.
Chapter 13 Bankruptcy:

  • Repayment of all or a portion of your debt
  • Ability to keep property
  • Remains on your credit report for 7-10 years
  • Forever have a bankruptcy on public record (background check, county records)

The biggest difference is that you’ll pay back all or a portion of your debt. Yes, in this bankruptcy you will have a monthly payment. You’ll also be able to keep any of your property.
A Chapter 13 will also allow the courts to modify your exiting home loans so it might be possible that your existing mortgage is made more affordable to you. Although a Chapter 13 Bankruptcy is different than a Chapter 7… It’s still a Bankruptcy!

Is Bankruptcy A Good Option For Your Situation?


Bankruptcy is not something you want to rush into. If you can avoid bankruptcy, you should because once you file your whole personal and financial situation is in the hands of the court.
You may also want to know whether your debt can be discharged in a bankruptcy. For example, you can’t include these debts into a bankruptcy:

  • Back due child support payments
  • Alimony
  • Student loans
  • Income taxes.

When First Choice Debt Relief determines whether a credit card debt settlement plan is suitable for someone, we look to whether or not the consumer is “Collection Proof.” Someone who is collection proof has little to no assets that a creditor would be able to collect for the outstanding debt.
For example, retirement income is exempt from creditor garnishment so if this was a person’s sole income a creditor would have little recourse. Assets such as homes may also be uncollectable if they are underwater on their mortgage or protected from state laws such as homestead protection.
If you are “collection proof” settling credit card debt may be the difference you need to get back on track.
Don’t rush into bankruptcy. Speak to one of our counselors and see if you can arrange a debt management plan without having to file bankruptcy.