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Carried away by the holiday spirit and now find yourself crash landing on a pile of debt? Do you see yourself chipping away at that debt for years without standing on solid financial ground? Well then, it’s time to talk about options, including bankruptcy.

First off, know this: bankruptcy should not carry any stigma or shame. It’s simply a legal decision for those with out-of-control debt. Bankruptcy provides some financial protection to borrowers and consumers. As well, it’s a personal finance tool that helps people do better financially and save more for retirement than they would if they slowly chipped away at their debt over the course of many years. Simply put, bankruptcy is a way to move forward.

When You Should File for Bankruptcy…

No doubt, bankruptcy gives you a fresh start. But it’s important to understand that it does not eliminate all types of debt. Bankruptcy erases certain debt obligations and helps you keep on top of any debts that you must repay.

Bankruptcy eliminates:

· Credit card debt.

· Medical bills.

· Payday loans.

· Deficiency judgements on foreclosures.

· Landlord-tenant judgements for damages and back rent.

· Repossessions.

Bankruptcy does not typically erase:

· Student loan debt.

· Tax debt.

· Child support.

· Alimony.

· Criminal Restitution.

So when should you file for bankruptcy? Well, it’s a personal decision guided by individual needs. But in certain situations, bankruptcy just makes sense. And usually it’s preferable to:

· Dipping into retirement savings.

· Having wages garnished. As soon as you file for bankruptcy, you benefit from an ‘automatic stay’ that protects your income from creditors seeking to garnish your wages.

· Foreclosing on your home. If you have a good amount of equity in your home, you usually can save that equity by filing bankruptcy and avoiding foreclosure. But you still will need to catch up on missed mortgage payments. And if making those payments will keep you financially strapped, you might want to let the house go. A trustworthy attorney can help you choose the best option.

· Taking more than two years to pay off your debt. Calculate the amount of dischargeable debt you owe to creditors, then divide that value into 24 monthly payments. Can you afford to pay this amount consistently for the next two years? If not, bankruptcy is a better option.

· Using your tax refund to pay debt.

Some people hesitate to file for bankruptcy because they fear the negative impact it would have on their credit score. But if you’re considering bankruptcy, you likely have a tarnished score already. Most financial experts agree that bankruptcy is not significantly more damaging than a poor payment history.

So, you’ve decided to file for bankruptcy?

Once you’ve decided bankruptcy is your best option, you should:

· Hire a competent attorney. I know a really good attorney… enough said.

· Find a friend who will comfort and support you. Filing for bankruptcy takes an emotional toll. Find someone you can talk to through this difficult time.

· Learn about your options – Chapter 7 vs. Chapter 13. Chapter 7 erases most debt and works for those who prove they don’t have the means to pay off their creditors. Chapter 13 is for those with reliable income who can repay at lease a portion of their debt within a reasonable timeframe. It also allows you to retain a house even if the mortgage is not current.

In Closing

Bankruptcy can help you reclaim a financially secure and prosperous future. But, that said, it’s not the best option for everybody. Consult with an experienced attorney to find out if it’s right for you.