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Filing for bankruptcy can be an overwhelming decision. However, according to the Wall Street Journal, it is one more than 1.6 million Americans made in 2010 alone.

It is important to remember — despite popular opinion — that filing for bankruptcy is not innately bad. Also, it does not mean the filer was financially irresponsible. Often, an unexpected event, such as a company shutdown or injury, can leave a person with insurmountable debt.

Whether you file for chapter 7 bankruptcy, which involves the liquidation of assets, or chapter 13 bankruptcy, which involves a payment plan that restructures debt, this decision may be a step toward financial stability. However, you should be ready for the challenges that come with bankruptcy; these may include living without a credit card and following a strict budget.

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Posted on in Bankruptcy

Stockton and Detroit have succeeded in emerging from bankruptcy filings, but other cities could have similar issues in the near future. These medium-sized cities in California and Michigan struggled with, among other things, an underfunded pension system. There was simply not enough tax revenue to pay these obligations. One observer called Illinois the “basket case” of pension cases. For a number of decades, The Land of Lincoln has relied on generous retirement plans to attract and retain workers at otherwise lower-paying jobs. When money started to get tight a few years ago, the state began borrowing against the retirement fund in order to pay for services. That action has resulted in a $111 billion pension deficit.

One out of every five dollars in the state budget goes to the pension fund. Even worse, 80 percent of that money goes to debt servicing.

Bankruptcy and Unsecured Debt

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The decision to petition the U.S. Courts for protection under Chapter 7 bankruptcy is a highly personal decision. For those deciding to consult with an experienced bankruptcy attorney, choosing to move forward often stems from dire financial necessity in order to alleviate insurmountable debt through the “liquidation” or sale of a debtor's nonexempt property, with all proceeds scheduled to be distributed to awaiting creditors but at what cost publicly?

The stigma or deviation from the societal norm may be one of the leading reasons an individual may shy away from seeking financial solutions under Chapter 7 bankruptcy protection. Concerns that family, friends or business associates may ostracize or view them in a different light often adds to the stress of financial difficulties.

Although the bankruptcy stigma varies widely, there may still be some truth to the matter and any individual contemplating bankruptcy should first consult with an experienced bankruptcy attorney to determine whether seeking Chapter 7 protection is the best financial recourse.

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Bankruptcy can be an effective way to discharge debt and get back on your feet, no matter the specifics of your personal finances. One of the most common misconceptions about bankruptcy, according to The CPA Journal, is that a person must be completely broke to file. “With limited exceptions,” the CPA Journal reports, “the only requirement to file for bankruptcy is that the debtor cannot pay bills as they come due.”

There are two types of bankruptcy that a person can file for to “get a fresh start,” according to the U.S. Bankruptcy Court. Chapter 7 bankruptcy provides for liquidation, which means that a debtor's property will be sold to pay off creditors. A Chapter 11 bankruptcy provides for debt reorganization, which means that a person's debts will be reconfigured so that the debtor can handle the monthly payment.

In Illinois, according to the Illinois Attorney General, “claims that aren't paid through liquidation are discharged,” and “in reorganization cases, the court approves a repayment plan that provides for partial payment of debt over time.” Both of these give debtors protection from creditors. According to the Illinois Attorney General, protections from creditors include (but are not limited to):

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A bankruptcy is like a fresh start for someone who is buried in debt and filing for bankruptcy can have a major impression on your life and credit score. Taking some small steps post-bankruptcy can help to allow you to rebuild your credit and establish good habits for the future.

The first step is to make a budget. Today, there are budgeting tools available through computer programs, websites, and even mobile applications. Manual programs like “You Need a Budget” might involve more of your time to input bill payments, but there are also automated options that sync directly to your bank account. Getting a better picture of your finances can help keep you on track.

Although it might seem counterintuitive at first, eventually you'll want to get a credit card. This is a great way to re-establish good credit, but you want to tread carefully when making your selection. It's important that you do use the card, but also that you are able to pay it off each month. Perhaps use the credit card for one unchanging expense (like a car insurance payment) every month and use a calendar reminder to go in there and pay the credit card balance immediately after your payment clears. This shows that you have reformed your ways and are capable of using credit responsibly. Once you have obtained a card, work hard to build a long-term relationship with that company. This all goes to help improve your track record with your credit score.

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