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The pros and cons of filing for bankruptcy

One of the cases made against filing for bankruptcy is the damage it inflicts on the individual, both financially and personally. In some regards, this is true. It's hard to argue that bankruptcy isn't a stressful time that will cause the individual filer to feel anxious and nervous about his or her future. A bankruptcy will also cause someone to lose some of their unprotected assets through liquidation if the filer chooses a Chapter 7 filing; or to have the bankruptcy reflected on their credit score for a decade in the case of a Chapter 13 filing.

Your credit score is going to be affected. There will be some difficult times as you regain your financial footing. And no, bankruptcy isn't a cure-all.

However, there are some very beneficial aspects to filing for bankruptcy. For example, as stressful as bankruptcy may be, it is certainly less stressful than watching your debt continually grow and having to avoid phone calls or ignore letters from debt collectors.

Bankruptcy can also allow an individual to protect certain assets, like their home, in case their debt starts to become a major issue. Those debts can also be discharged in bankruptcy -- if not completely, then at least partially.

If you don't want to go through a divorce, a debt settlement plan may interest you. However, be careful when executing such a plan. You'll want to know all of the ins and outs before agreeing to a debt settlement -- and regardless of whether you go with such a plan or if you file for bankruptcy, you'll want to have an attorney with experience dealing with bankruptcies to ensure you're rights and interests are protected.

Source: FOX Business, "Debt Settlement vs. Bankruptcy: Which is Worse for Credit Score?," Jane McNamara, April 23, 2014

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