Erasing debt sounds like the easy way out but the process of filing for bankruptcy can be costly and time consuming. If you think you may need to file, consider these factors first:
►What it is: This more common filing frees you from all your unsecured debts, including credit cards and medical bills. You are still responsible for student loans, taxes, house payments and child support. If you own a home or car, you could be forced to sell it to pay your debts. Only those who make less than the state’s average income qualify for Chapter 7.
►Cost: Filing fees run about $300 and legal fees can cost upwards of $2,000.
►Pros: You are no longer responsible for your credit card debt, and the creditors stop calling.
►Cons: Lives on your credit report for 10 years. Chapter 7 does not wipe out your responsibility for secured debt, so be sure you can continue to pay your mortgage or car loan, as well as any student loans and child support.
►What it is: If you own a home, car or other property, filing Chapter 13 will protect it. The court makes you undergo credit counseling and lays out a plan for you to pay off your debts over a three- to five-year period. You incur no interest on your debt during that time. And when you fulfill the conditions of the plan, you emerge debt-free.
►Cost: Filing fees run about $300 and legal fees can cost upwards of $5,000.
►Pros: It prevents home foreclosure and helps you repay your mortgage, credit card and other debt over time, without further penalties.
►Cons: Lives on your credit report for 10 years. If you lose your job or find that you can’t keep up with your payment plan for another reason, contact the court immediately to restructure your plan so you don’t default on it.