• 12
  • March
    2011

While the economic recession has allegedly come to an end and economists say the financial climate is on the rise, countless Americans are still drowning in debt and many have sought relief by filing bankruptcy.

In fact, 1.53 million Americans filed bankruptcy last year, which was a nine percent increase over the number of filings in 2009, according to a report by the American Bankruptcy Institute. The hike in bankruptcies also comes after three years of double digit percentile increases. The large number of recent filings serves as a stark reminder that the American people are still struggling to survive, often due to an event such as illness, divorce, or loss of job.

There are two types of personal bankruptcy available: Chapter 7 and Chapter 13. Chapter 7 is the most common type, accounting for more than 70 percent of bankruptcy filings in 2010. This form of gets rid of most debt. It also requires a means test to determine if the debtor has sufficient income to pay a portion of his or her debts. If so, then the debtor does not qualify, but has the option of filing for a Chapter 13 bankruptcy.

Chapter 13 sets up a repayment plan where debtors repay a portion of their debts, usually over three to five years. Filing Chapter 13 bankruptcy often allows debtors to keep their homes or avoid foreclosure, and can allow debtors to catch up on back-owed mortgage payments. It can be a good alternative to foreclosure, with potential to do less damage to the debtor's credit.

This is a very rough sketch of bankruptcy so further analysis of both types are highly encouraged to someone considering filing or facing foreclosure. It's also important to know that some forms of debt are considered non-dischargeable, including student loans, back child support or alimony and some unpaid taxes.

Source: MSNBC.com, "Filing for bankruptcy could save your home," John W. Scoen, 3/9/2011.