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Bankruptcy, the final solution, is for those who are in up to their chin and are going down for the third time. Of course when you declare bankruptcy, you don't die, your debts do. You get re-incarnated and a fresh start to a new financial life. Well, almost. There are some things you need to know before you head down to your local court.

First of all there, are two types of individual bankruptcies; the type called Chapter 13 is really a court approved consolidation that restructures your debt until you can pay it all off. And then there's Chapter 7. But first...

A Little Bankruptcy History
Because of a fiscal crisis Congress passed America's first laws allowing debt relief in 1800. Three years later the laws were repealed. The Bankruptcy Act of 1898 allowed businesses to be protected from creditors, as far as individuals were concerned, well, no such protection was given. A Supreme Court ruling in 1915 validated the laws and gave rise to the legal notion of a financial fresh start. In the 1930's the Great Depression saw additional bankruptcy laws enacted. They were still designed only to help with business debts.

It was The Bankruptcy Reform Act of 1978 that gave birth to individual help in the form of our current Chapter 7 and Chapter 13 bankruptcies.

The more I study the history of debt and bankruptcy the understand why there is such a stigma against it. But I firmly believe that bankruptcy is an honorable and legitimate, it’s even in the U.S. Constitution, way to get out of debt. If the only reason you're not going to declare bankruptcy is because of your emotional misgivings then think again. If it’s right for you financially then do it. If not find another way but please treat bankruptcy with the respect it deserves.

For more details visit The History of Bankruptcy Chapters
9,11, & 12

Chapter 9, municipal bankruptcy,is designed for public subdivisions of a state, usually municipal utilities, government school and water districts, and cities.

Chapter 12 is designed specifically for the reorganization of family farms.

Chapter 11 allows current management to retain control of an ongoing business, they can obtain new financing, and continue in business all while having exclusive rights to propose reorganization plans to creditors theoretically for 120 days but in reality for the duration of the case.

Chapter 13 Bankruptcy
This path is a Chapter 13 Bankruptcy, a court approved re-organization plan. A chapter 13 bankruptcy is normally for people with too much income to file a chapter 7 or for those who have a lot of non-dischargeable property. Chapter 13 bankruptcy is for consumers or small businesses who want to repay their creditors while protecting their real estate and personal property and avoiding harassing collections efforts. You cannot file a Chapter 7 if you have filed a 7 or 13 within the past 6 years (unless you paid off at least 70% of your unsecured debts in a previous 13 filing). However, you can file for Chapter 13 at any time. A trustee would propose a 3-5 year plan to creditors where the debtor would repay part of his debts out of future income. The trustee calculates how much you can afford to pay each month after considering your living expenses, income, and disposable income. At the end of the plan's period, you would not be liable anymore for your debts.

In a Chapter 13 you end up paying back at least 50% of your debts and in some cases, the entire amount. If a payment is missed you could be forced to pay the whole debt back. A Chapter 13 doesn't stay on your credit report as long as a Chapter 7 and there are some debts that can be discharged in a 13 that can't be discharged in a 7.

Chapter 7 Bankruptcy
The Bankruptcy Abuse Prevention & Consumer Protection Act of 2005 requires debtors to receive a briefing from an approved credit counseling agency within a six month period prior to filing their bankruptcy case. Then they must pass a strict Means Test to determine whether they can have their debts liquidated through Chapter 7 or whether they must enter a repayment plan through Chapter 13. And they must take an approved class on debt management techniques that they have to pay for, before they receive their bankruptcy discharge.

But that’s not all. There’s a provision making it easier for a court to dismiss a bankruptcy case outright or to convert a Chapter 7 case to a Chapter 13 case; and a provision permitting a court to impose sanctions on attorneys, or even on debtors, for filing a Chapter 7 case that is dismissed or converted to a Chapter 13 case. Furthermore, any party in interest (in other words, one of your creditors) can now move to dismiss a case. Another provision provides for sanctions. Under the Act, the court may order the debtor's attorney and even the debtor to pay sanctions to the bankruptcy trustee to reimburse the trustee for all reasonable costs if the court grants the motion.

The new law makes bankruptcy more complicated. It now makes more sense than ever to talk to a good bankruptcy attorney.

If You're Considering Bankruptcy
For help deciding whether filing bankruptcy is the best way to rejuvenate your finances, speak with a local bankruptcy attorney. You can have your most pressing questions answered by scheduling a free, no-obligation call by filling out the form below or you may simply call (858) 459-3328 and ask for Bill.

Consider This
Here's another point to consider. Once you declare bankruptcy you're going to receive all kinds of credit card offers. Here's why. You've already proven to the credit card companies that you've mismanaged your money and are likely to use your new card to the point that you'll wind up making endless monthly payments to them. They'll love you if you do and it will give them an extra warm and fuzzy feeling knowing that you can't file bankruptcy again for another ten years. Just fill out that application, send it back and they've got ya' and they've got ya' good.

Unless you have the determination to stay away from credit cards forever, you'll just wind up being a cash cow for the credit card industry. You'll go grazing to work everyday for the rest of your life and they'll milk the money from you by squeezing you until it squirts out, one payment at a time.

The Ultimate Solution
No matter which path you take the ultimate solution to debt is found by taking control of your life, and your money. Just figuring out where the money goes isn't enough. You must have internal control over your emotions, thoughts, and actions. By doing this you will gain the ultimate control that will allow you to build the life of your dreams.

The ultimate solution to debt lies in creating and living a debt-free and prosperous life. I invite you to start you inner journey to wealth by reading The Art of Prosperity.


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See how long it will take for your debt to get paid off with one of these four options. We have listed a standard debt amount as a default on the debt calculator. You will need to enter your current personal or business debt amount below to see what your debt payoff amounts will reflect.

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Total Interest Paid $49,978.53 $10,040.01 $21,300.00 None
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Total Cost
To Be Debt Free
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PLEASE NOTE: This calculator gives you an estimate of how much it will cost you to get out of debt, how long it will take and how much your monthly payment may be with the different options to pay off your debt. Keep in mind "Minimum Payments" assumes you NEVER make any further purchases on your credit cards and the credit card companies NEVER raise the interest rate on your cards in the future from the rate calculated above. The "Debt Consolidation Loan" example is usually only possible when taking out an "equity line of credit" or "second mortgage", which involves securing your unsecured debt with your home. This is a very risky option for most people because the home could be foreclosed if you cannot make the payments.