For consumers facing foreclosure of their properties, sometimes bankruptcy protection is the only option left. While sometimes bankruptcy may be the only recourse left, it is fraught with dangers. It would most certainly damage your credit, which will have tremendously adverse implications on your borrowing capability, and may also negatively impact your future employment prospects. Therefore, it is always advisable to consult a good attorney who will be in the best position to fully analyze your financial situation and help you decide whether bankruptcy is the best option for you. A good lawyer can help you ascertain which bankruptcy chapter you should file and also assist you in charting out a plan to safeguard your assets to the maximum extent possible. While it may be a good idea to take the advice of an experienced bankruptcy attorney, the decision of whether or not to file for bankruptcy has to be yours.

Consumers can generally file for bankruptcy under the following two types- Chapter 7 and Chapter 13. If you are unable to cover your debts with your assets or income, you may decide to file a Chapter 7 bankruptcy. While under this type of bankruptcy, you may be able to discharge most of your unsecured debts, you may have to consider the property exemption limits provided by your particular state’s laws, which can be the major limitation for you in keeping your property. Depending on your particular situation, your attorney may even advise you to move to a different state which offers generous exemptions such as Texas or Florida, before filing for Chapter 7 protection. The good thing is that none of the exemption amounts are absolute, and your attorney would in all probability estimate your property values using an allowable standard that is most favorable to you so that the statutory limits do not pose a problem.

If you stay current in your mortgage payments and file a statement of intention regarding the property to retain it, you can retain the property. This is called a debt reaffirmation. This is an agreement in which the debtor agrees to repay a debt even if it was or could have been discharged (i.e., forgiven) in the bankruptcy proceeding. A debt reaffirmation agreement is legal if it is voluntary, made with or without the advice of an attorney, filed with the bankruptcy court, and approved in certain circumstances by the bankruptcy court. A Chapter 7 bankruptcy would discharge any deficiency balance resulting from a short sale or deed in lieu of foreclosure. Alternatively if there is no short sale or deed in lieu of foreclosure, a Chapter 7 would wipe-out any liability for the mortgage or foreclosure.

Alternatively, if you do have a regular income or own significant assets that can cover your debts, filing for a Chapter 13 bankruptcy may be more advisable. Especially in cases when your home equity exceeds the limits under the home state’s homestead exemption, Chapter 13 is often preferable to Chapter 7 because it enables the debtor to keep the house. This type of bankruptcy is often used by consumer debtors who do not qualify for Chapter 7 relief under the means test, which went into effect in 2005 with the Bankruptcy Reform Act.

Under Chapter 13 bankruptcy, the debtor usually remains in possession of the property of the estate and makes payments to creditors based on the debtor’s anticipated income over the life of the plan. While an immediate discharge of debts is not received, the debtor must complete the payments required under the plan before the discharge is received. A notable benefit is the fact that the debtor is protected from lawsuits, garnishments, and other creditor actions while he plan is in effect.

Author Bio: bankruptcy file for bankruptcy chapter 7 bankruptcy

Category: Finances
Keywords: bankruptcy, file for bankruptcy, chapter 7 bankruptcy