How Chapter 13 bankruptcy can benefit someone in debt

Deciding which bills to pay and which to put off for as long as possible is a difficult problem that faces anyone who finds him or herself in a credit mess. In an economy that is continues to recover only slowly, many Long Island residents still find it difficult to make ends meet while dealing with debt collectors.

Although two months remain in this year, the number of bankruptcy filings have almost matched the number in 2008 when bankruptcies totaled 1.1 million, a 32-percent increase over the previous year. As of June this year, filings were at 1.1 million. Among the reasons for the large number include mortgages, credit card debt, unexpected medical expenses and car loans.

With the uncertain economy, other factors such as job loss and jumps in interest rates can also affect a person’s ability to stick to a payment plan, and this in turn may mean that major and important bills are not paid.

A person who has problems paying debts may be reluctant to file for bankruptcy because of fears of being labeled irresponsible. However, filing for debt relief is one of the most rational courses of action that a debtor can take when there are no realistic hopes of ever getting out of debt.

On the other hand, not filing for bankruptcy but failing to make regular and timely payments can destroy a person’s financial situation. When a debtor fails to pay, a creditor can garnish wages and file liens against the debtor’s property.

Depending on eligibility, a person may file for a Chapter 13 bankruptcy to have a fresh financial start is an ideal option. The arrangement acts like a consolidation loan, where the person pays his or her debt in three to five years without having to sell any property.

Source: CNBC, “The good thing about bankruptcy,” Sakina Spruell, Oct. 21, 2013