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Understanding the difference between debt relief and bankruptcy

When it comes to drowning in debt, there are a number of reasons individuals find themselves struggling to make ends meet. Whether it be unforeseen circumstances or voluntary excesses, debts, if left unresolved, can make your life much more difficult that it already was.

There are a number of reasons you may find yourself overwhelmed by debt. Maybe you've racked up some hefty medical bills or lost your job. Or, perhaps you have amassed significant credit card debt as the result of excessive purchases over time.

No matter what the reason, when you find yourself upside down on your bills, it can feel like you are attempting to swim upstream. When faced with the burden of overwhelming debt, it's natural to contemplate whether debt relief or bankruptcy is the right solution.

There are many benefits associated with filing bankruptcy such as helping to eliminate debts, consolidate payments, stopping collection proceedings, or being allowed to keep your home. That being said, there are many negative aspects to filing bankruptcy as well.

Although filing bankruptcy can eliminate most of your debts, it remains on your credit report for up to 10 years. During that timeframe, it can adversely impact your ability to secure credit, take out insurance, get a job, or enter into to certain housing agreements.

With that in mind, at the onset of your financial struggles, you should contact your creditors to try to work out a structured repayment plan. Alternatively, you might contact a credit counseling service who, for a small monthly fee, will develop a repayment plan that works for both you and your creditors.

No matter what avenue you pursue, it's important that you avoid taking out a second mortgage or home equity loan, whenever possible. Doing so would potentially put your property in jeopardy of foreclosure since your home would have to be used as collateral for the loan.

If all other avenues have failed, then bankruptcy may be ideal. That being said, if you've previously filed, you must wait eight years between Chapter 7 as compared to two years between Chapter 13 filings to re-apply. Chapter 13 is also unique in that it allows you to keep more possessions and a three to five year window to repay debts.

If you or someone you know is struggling with overwhelming debt, a Knoxville, Tennessee, bankruptcy attorney can provide advice and guidance in your legal matter.

Source: Federal Trade Commission, "Debt relief or bankruptcy?," accessed Feb. 28, 2017

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