No one living in Phoenix may want to have to file for bankruptcy. Many people attach a stigma to bankruptcy and those who file for it, but much of that stigma should be disregarded by those who no longer have the means to pay their bills. For many people, filing for bankruptcy is the only way to get out from under their debt and get a fresh financial start.
Suze Orman, a televised financial adviser, says that people gripe to her when she recommends that some file for bankruptcy. However, she says that many people don't have a better option. Bankruptcy allows these people to face their financial problems head on and start rebuilding their financial lives. She also notes that while bankruptcy certainly has its drawbacks, the alternative can be much worse. Creditors can files lawsuits, garnish wages and even places liens on someone's home.
Two types of bankruptcy are the most common for individuals. Chapter 7 bankruptcy discharges a person's debts and stops creditors from taking further collections actions against them. In Chapter 7 bankruptcy, any nonexempt assets may be sold to pay back some of the debt. Chapter 13 bankruptcy doesn't force the debtor to sell their property. Instead of discharging the debt, however, this type of bankruptcy acts more like a debt consolidation loan. The debtor must repay their debts in a period that normally lasts three to five years.
Many people get into the situation they are in financially because of factors that are out their control. This was the case throughout the financial crisis and continues to be today. Because of this, the stigma that many associate with bankruptcy is unfounded. While it's not the right step for everyone, bankruptcy should be considered a viable alternative for those who no longer have the means to repay their debts. A bankruptcy attorney may be able to advise someone overwhelmed by their debt on which part of the Bankruptcy Code is best for their situation.
Source: CNBC, "The good thing about bankruptcy", Sakina Spruell, October 21, 2013