Filing for bankruptcy protection is a remedy that many citizens in debt have had to pursue since the recession began over 4 years ago. There were thousands who experienced one of the wage earners in the family lose a job or take a substantial reduction in income.
For many, there was no other choice but to try to use their credit cards to get by while trying to replace the former income in order to make ends meet. Tragically, many families were faced with the decision of whether or not to put food on the table or use their credit cards. Many depleted their life long savings that they worked hard to acquire. Also, many cashed out on their 401k and now face a substantial income tax obligation to the IRS.
For many people in a situation where they have a large amount of credit card debt, the best answer is bankruptcy. There are other options, but they have many pitfalls. For example, if someone who has a lot of credit card debt does an accommodation with their creditors (debt settlement plan) then they are probably not aware that they will be taxed on the forgiven portion of that debt. In other words, if someone owed $40,000 worth of credit card debt and they were able to settle with the creditors for $10,000 then the forgiven $30,000 would be included in their gross income and could result in substantial IRS tax debt.
However, filing for protection under either Chapter 7 or Chapter 13 of the Bankruptcy Code will allow most debtors to discharge their unsecured debts and there is no taxable event. Also, filing bankruptcy usually allows someone to rehabilitate their credit much more quickly than if they did a debt consolidation or debt settlement plan.
The bottom line is filing for protection under the Bankruptcy Code helps individuals get relief from pre-existing debt and obtain a fresh financial start.