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Is Chapter 13 bankruptcy the best option?

In recent years, the national conversation about personal debt has been largely shaped by the recession. As the housing market sank, many people began to face down the possibility of foreclosure, because their mortgages were underwater. Personal bankruptcy became a viable solution to help individuals to remove the burden of debt and build a stable financial future.

According to CNBC, the number of bankruptcies jumped by more than 30 percent immediately after the recession took hold. Unfortunately, though, many misconceptions about bankruptcy emerged as a result of this jump in filings. Financial guru Suze Orman points out that the bad reputation associated with bankruptcy isn't entirely fair, since it may be the best option for many distressed consumers.

First, it's important to understand what bankruptcy means for those who file. One popular route is to file Chapter 13, which is considered a reorganizational bankruptcy. Through this process, consumers follow a repayment plan over the course of three to five years. This provides much-needed breathing room. Rather than dealing with harassing calls and collection letters, a person abides by a clear plan to satisfy creditors.

At the same time, it's important to note that filing for bankruptcy doesn't mean a person has to give up everything they own and start from square one. In fact, Chapter 13 allows room to keep property, such as a home, while working to pay back debts. Understanding this idea could help change a person's perception of bankruptcy.

Consumers should always look at what options are on the table. In certain cases, Chapter 13 might not be the most viable path through bankruptcy. By considering income and the type of debt a person has, a solid debt relief solution might be at hand.

Source: CNBC, "The good thing about bankruptcy," Sakina Spruell, Oct. 21, 2013

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