How to Get Out of Debt - Is Bankruptcy the Right Choice?

Unlike centuries past when individuals who owed substantial that could actually find themselves in jail, we have a variety of options available to us. There are a number of tools at the disposal of anyone who would like to get free of debt so that they can improve their long-term financial health. From payment renegotiations to home equity loans, there are a number of choices available before an individual make the drastic step of declaring bankruptcy. Of course, simply declaring bankruptcy does not necessarily mean that a person is automatically freed from their obligations.

There are two types of bankruptcy relief. A person will likely be faced with choosing between Chapter 13 and Chapter 7 debt relief. There are some profound differences between these two types of bankruptcy meaning that an individual should carefully consider all their options before finally settling on one. Is also important keep in mind that an individual's credit will be severely affected by filing for bankruptcy in their credit record will have this information contained within it for 10 years. This means that it can be difficult to purchase a car, buy a home or get any other type of loan during that period.

The biggest difference between the two types of bankruptcy protection is that Chapter 7 relieves an individual of their responsibility of repaying the majority of their creditors. There are of course a few exceptions including taxes, child support, alimony, legal judgments and student loans but, for the most part, a person will walk away debt-free after filing. An individual who chooses this route will also have to surrender certain types of property such as high value vehicles in order to gain protection. There are some exemptions which can vary from one state to the next.

Chapter 13 bankruptcy, also known as the wage earner plan, is significantly different since an individual is allowed to keep their property but are required to follow a court approved repayment plan. While both types of bankruptcy are damaging to an individual's credit rating, it is often easier to get loans after fulfilling the terms of a Chapter 13 bankruptcy program since an individual has paid back at least part of the debt that they owed. Although these are options available to an individual looking to be free of debt, they should be considered a last resort since they can have long-term effects. Understanding these options is the best way to make a smart decision.