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Making The Right Move: The Bankruptcy Decision

Those financial problems are beginning to mount; you are behind on nearly every obligation and you are constantly being harassed by collection activity. To some bankruptcy filers, the decision day is put off far too long, and you may now be in danger of losing your home and car to foreclosure and repossession. Before things get too out of hand, it might serve you to consider exactly what a chapter 7 bankruptcy filing could do for you. To get a better idea of the perks and problems connected to a federal filing, read on.

Credit card bills will immediately disappear. As a potential filer, you should become familiar with the terms "unsecured debt" and "secure debt." If your debt falls into the unsecured bucket, the debt and the need to continue to make monthly payments on that debt go away instantaneously with your filing. For most people, this is a huge perk, since credit card debt is considered unsecured debt, and therefore disappears before your eyes with a chapter 7 bankruptcy filing. Better still, not only will this free up more money to catch up on other obligations, you will get those creditors off your back, since they are not allowed to make contact with you for any reason once they receive word of your filing.

Some of your property could disappear as well. The flip side of the above is also true, any property that is connected to secured debts can be placed in jeopardy. A chapter 7 bankruptcy filing is also known as a "liquidation" filing, which means that some of your property, like your home, boat, car, etc. can be subject to seizure by the bankruptcy trustee.

Saved by the exemptions. The bankruptcy laws do take some pity on filers by allowing them to potentially keep some of their secured debt property. Many people have nothing more valuable than their home, and home mortgages are considered a secure debt. You may have already been threatened with a foreclosure, and the bankruptcy filing will pause that action for the time being. If you don't get caught up on the past due payments, however, your home may still face foreclosure in the coming months.

Most states allow filers to take some of the value of the property, like a home, off the top for calculation purposes, which could allow you to save your home. Consider this example for further clarity: Your home has a value of $200,000 and your particular state gives you an exemption of $25,000. You still owe $175,000 on the mortgage. You may be able to keep your home in this case. Before you panic if your situation calls for a home seizure, consider that the actual dollar amount of your bankruptcy filing is also considered. The bankruptcy trustee is not likely to seize a $200,000 home to pay a bankruptcy debt of less than $100,000. Speak with a bankruptcy attorney for additional information.