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Declaring bankruptcy is a serious financial decision: one that evokes fear and uncertainty and demands a great deal of consideration and research. However, this action also provides relief in extreme situations and is worth considering if your total debt exceeds what you can repay.

Below is a quick guide to the bankruptcy process, its advantages, and when you should file:

What Is Bankruptcy?

bankruptcyBankruptcy is a status that applies to individuals and businesses who are unable to repay outstanding debt. When you file for bankruptcy, you enter into a process that eliminates a portion of the total amount of money owed under the protection of the federal bankruptcy court.

What Are the Different Types?

For individuals, there are two main types of bankruptcy: Chapter 7 and Chapter 13. The first pays off creditors by liquidating all non-exempt assets. This can be beneficial in cases involving an individual with little income and a large sum of unsecured debt such as credit cards and medical bills. Chapter 13, on the other hand, uses a repayment plan to adjust and reorganize debt. It is often the best option for those who have adequate income but require time to repay outstanding debts or would prefer to avoid a home foreclosure. 

What Are the Advantages of Filing?

One major advantage is an “automatic stay,” which notifies your creditors to cease contact with you. Once it’s in place, creditors will be prohibited from calling, sending collection letters, garnishing wages, or seizing assets—aside from a few instances, such as collecting child support or alimony. If your case is successful, the judge will discharge certain debts, meaning you will no longer be required to pay them.

When Do You File?

Those able to negotiate a debt reduction or payment plan with creditors should not file for bankruptcy. Before moving forward, it’s important to explore alternative options, such as loan refinancing, credit card consolidation, financial coaching, and credit counseling.

On the other hand, bankruptcy may be a viable solution if you have delinquent taxes, own a property that is nearing foreclosure, have wages that are being garnished, or have been unemployed for an extended period with no savings or unemployment income.

 

If you require the aid of a skilled bankruptcy attorney in Reedsburg, WI, LaRowe Gerlach Taggart LLP, Attorneys at Law is backed by over 175 years of combined experience. Their seasoned lawyers focus on a range of case areas, including bankruptcy and criminal law, as well as personal injury and estate planning. Visit them online to learn more about their practice areas or call (608) 524-8231 to schedule a consultation.

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