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Considering Bankruptcy?

Here's What You Need to Know

Many Americans find themselves buried in credit card debt, feeling as though they’ve lost control of their finances and contemplating bankruptcy as a solution. Although Bankruptcy is a suitable option for those facing significant hardship, financial experts recommend exploring alternatives to bankruptcy first.

Fortunately, there are alternatives to bankruptcy that can help you regain financial stability. Exploring credit card relief options, such as debt settlement, can be an effective strategy.

If you’ve explored bankruptcy alternatives, and feel like bankruptcy is best for your situation, we’re here to help provide you with the information needed to make a decision.

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Key Points for Consideration in Your Decision Process:

What is Bankruptcy?

Bankruptcy is a legal process that allows debtors to either repay some of their debts or get them entirely forgiven. While it offers relief from many debts, exceptions include:

Bankruptcy is intended for those in dire financial straits, not as a simple escape from debt obligations. It can significantly harm your credit score and restrict your ability to secure favorable loan terms in the future. Exemptions in bankruptcy, determined by state law, often protect primary residences, clothing, and one vehicle, but may require surrendering secondary assets.

Bankruptcy Statistics

Over recent years, millions have pursued personal bankruptcy for debt resolution. As of January 2023, the number of bankruptcy filings in the US increased by 18%. This is due to higher interest rates and stricter lending standards which caused many to become overextended.

Types Of Bankruptcy and How They Work

2 major types of bankruptcy apply to consumer debt

or “liquidation bankruptcy” involves the liquidation of most of the debtor’s unsecured debt. A trustee appointed by the court gathers and sells your nonexempt property. The proceeds from the sale repay your creditors. Any remaining debt is usually discharged. You’re able to keep any “exempt” property.

Typically, with a Chapter 7 filing, it should not take longer than three to four months for your debts to be discharged.

To qualify for Chapter 7 under the provisions of the 2005 BAPCPA, the monthly income of your household needs to be under the state median for households of similar size.

After a Chapter 7 debt discharge, you may not file another Chapter 7 bankruptcy for six years.

Filing triggers an ‘automatic stay,’ halting creditor actions and lawsuits. This bankruptcy type can stay on credit reports for 10 years, while discharged debt records last seven years. Chapter 7 proceedings usually conclude within 3-4 months, subject to income eligibility requirements

or “personal reorganization bankruptcy” Involves a court-appointed trustee to organize a repayment plan that sets forth with specificity how debtors will settle their debts or pay off in full over three to five years.

Chapter 13 focuses on debt reorganization rather than outright discharge. It stops foreclosure actions and involves a court-approved repayment plan, often seizing all disposable income for debt repayment over 3-5 years. Eligibility criteria include undergoing credit counseling and meeting specific debt thresholds.

Both Chapter 7 and Chapter 13 bankruptcy represent a severe negative impact on your credit for 7-10 years. Even filing bankruptcy for credit card debt can be costly as a typical filing can cost up to $2,500. Filing for bankruptcy for debt could affect your employment status or ability to get hired.

To be eligible for Chapter 13, you’ll need to meet the following requirements.

  • You must have regular income.
  • You need to undergo credit counseling before filing.
  • Your unsecured debt cannot exceed $419,275, and your secured debt cannot exceed $1,257,850.
  • You must be current on tax filings.
  • You cannot have filed for Chapter 13 bankruptcy in the past two years or Chapter 7 bankruptcy in the past four years.
  • You need to submit an income/monthly expense report to the court.


  • May hurt your employment status or future employment.
  • In a Chapter 13 filing, you may end up paying 75 – 100% of your debt back.
  • Chapter 7 is much more difficult to qualify for under the new bankruptcy laws.
  • May result in higher interest rates on future loans.
  • Carries a negative stigma, mental stress, and other burdens.
    Bankruptcy is a “last resort”.
  • Chapter 13 completion rates average only 32%.

When is Bankruptcy a Viable Option?

Bankruptcy might suit those with overwhelming debts, facing foreclosure, or under intense collector pressure, unable to resolve debt through budgeting or additional employment.

Alternatives to Bankruptcy

Over recent years, millions have pursued personal bankruptcy for debt resolution. As of January 2023, the number of bankruptcy filings in the US increased by 18%. This is due to higher interest rates and stricter lending standards which caused many to become overextended.

Debt Settlement vs. Bankruptcy Comparison

While both options don’t require a specific credit score, debt settlement usually involves no upfront fees, potentially halves debt loads, and has a lesser impact on credit scores compared to bankruptcy’s severe, decade-long effect.

Debt Settlement


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Pros and Cons of Bankruptcy

Advantages of Bankruptcy

Downsides of Bankruptcy

When Should You File Bankruptcy?

In most cases, you only need to start researching bankruptcy options after exhausting every bankruptcy alternative. For more information about debt settlement vs. bankruptcy or to discuss your options, contact Optimal Debt Solutions to talk to a debt analyst.
To learn more about the Bankruptcy Code and the process involved with filing bankruptcy, please visit the US Courts – Federal Bankruptcy website for more information

Need Help navigating the the various debt relief options?

Speak with a Certified Debt Analyst for a free consultation.

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