There can be times when people find themselves buried so high in debt that there is absolutely no way that they will ever be able to pay it down, much less pay it off. This can happen for any reason when any one unexpected event throws us off. An individual or married person’s bankruptcy options are usually Chapter 7 or Chapter 13.

Chapter 7 Bankruptcy is a complete wipe-out of most all credit obligations that can be incurred by individuals. Once the petition is filed, creditors may no longer garnish your paycheck, contact you or otherwise attempt to collect money from you. Once the bankruptcy is discharged, the individual no longer owes that money and can begin fresh, however, the fact that the individual declared a Chapter 7 bankruptcy will remain on their credit report for about ten years, however opportunities to get new credit will come quickly after a discharge is entered.

Chapter 13 Bankruptcy is similar to a consolidation loan in several ways. Chapter 13 is appropriate when there is money leftover each month after living expenses are paid, but not enough to pay an amount that is satisfactory to each creditor. In a Chapter 13, the debtor makes one payment a month to the Trustee and the Trustee then distributes payment to the creditors of the debtor. Again, creditors may not contact the debtor to collect on the obligation once the petition is filed with the Court.

Benefits of filing a Chapter 13 can include:

Stripping a second or third mortgage lien from your home (if the current market value is at or below the balance of the first mortgage).

"Cramming down" the amount of debt secured on a vehilce and lowering the interest rate on the debt (to around 5%).

Catching up on back payments due to the first mortgage.

Paying back student loans, the IRS and child support arrearages at a more comfortable pace than what is being demanded of you without bankruptcy.

Addressing debt that was assigned to you in a divorce that cannot be discharged in a Chapter 7 bankruptcy.