If you are having serious difficulty keeping up with your monthly payments, you might be considering bankruptcy. You may have heard that bankruptcy entails serious credit issues, and that it should be avoided at all costs. Although a bankruptcy will certainly have credit score ramifications, it is often the case that by the time you've reached the point of considering the bankruptcy option, you have fallen so far behind on mortgage, vehicle loan, and credit card payments that your credit score has already fallen to a degree that a bankruptcy really won't take it much lower. And as a practical matter, if you already are, or for some time have been, behind on car payments, credit card accounts, etc., you will probably have a better credit score soon after bankruptcy than you have presently.
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But what type of debt, and how much of it, makes one a candidate for a Chapter 7 bankruptcy? If you have only a modest amount of credit card debt - particularly if that debt consists of only 1 or 2 creditors with whom a settlement negotiation might be possible - you may not need to file bankruptcy. If your revolving debt creditors number closer to a half-dozen or more, settlement with all of them is unlikely, and you may well need some stronger medicine, such as a bankruptcy. If your credit cards are still manageable, but your vehicle payment is becoming too burdensome - possibly because of a recent loss in income - then bankruptcy may again be a viable option. A large utility account (e.g. gas or electric) delinquency, especially where accompanied by shut-off notices, may also leave bankruptcy as your only effective solution.
Above all, pending or threatened foreclosure proceedings against your home may require a solution stronger than any debt consolidation or restructuring program can offer. A Chapter 7 bankruptcy may well offer you just the "breathing room" you need to apply for mortgage loan refinancing, modification, or hardship assistance programs. In addition to buying you the time necessary for these courses of action, a discharge in Chapter 7 bankruptcy will eliminate the very unsecured debts that so often siphon off critical disposable income, the loss of which has caused the difficulty in keeping up with the mortgage payments in the first place.
In short, a Chapter 7 bankruptcy will provide a "fresh start" for honest debtors who, for whatever reason, those typical ones mentioned above or otherwise, find themselves unable to keep up with their debts. Whether the pros of bankruptcy outweigh the cons is a calculation unique to each individual and his or her own situation. And of course, that decision should ultimately be made only with the help and advice of an experienced bankruptcy attorney, regardless of whether or not the best solution to your debt problem actually involves going the bankruptcy route.
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