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The true facts of bankruptcy make it an option to consider

For Pennsylvania consumers who listed financial survival and economic improvement as a New Year's resolution, consideration of bankruptcy may possibly be timely. Any discussion of the topic usually first contends with its sinister image. However, when someone begins to learn the true facts about bankruptcy, the reality of it always looks a lot better than its legend.

The bankruptcy option is provided by federal law, which is designed to give individuals and married couples a chance to discharge unsecured debt, wipe the slate clean, and get a fresh start. That is the basic Chapter 7, often referred to as liquidation. However, there is a second type of bankruptcy that is called reorganization.

For consumer debtors, reorganization is provided by Chapter 13. Whereas Chapter 7 is designed to wipe out large amounts of credit card and other unsecured debt such as medical bills, Chapter 13 is structured to give consumers a payment plan. This allows them to get their secured debts back up-to-date so that they can keep the collateral, such as a car or a house or both.

When a temporary glitch has gotten a couple or an individual into a situation where they've defaulted on their secured loan, they can avoid a foreclosure or repossession by filing a Chapter 13. They can then present a payment plan to get the arrearages on the loan caught up over a three to five-year plan. They must also continue regular payments on the loan during the bankruptcy period. At the end, the loan is current, and the collateral is safely in tow.

In liquidation, represented by a Chapter 7 bankruptcy, the debtor's assets are theoretically sold and divided among the creditors. However, in Pennsylvania the federal law exemptions make it unusual for a consumer debtor to lose any of his or her basic assets. This makes it feasible to wipe out large amounts of debt without losing one's basic belonging and assets. Damage to one's credit is not as daunting a task to repair as the image and legend would suggest, and that topic will be addressed further in future blogs.

Source:, "Bankruptcy may not be as bad as you think", Bellanora McCallumm, Jan. 2, 2015

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