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Is bankruptcy the key to surviving overwhelming debt?

A Chapter 7 bankruptcy can be of tremendous help to those Massachusetts residents who are struggling with overwhelming debt and need a fresh financial start. A discharge in a Chapter 7 bankruptcy can stop creditor harassment and protect debtors permanently from things like wage garnishments and frozen bank accounts.

However, there are some things that a Chapter 7 bankruptcy cannot do. For one, it is commonly known that a discharge in a bankruptcy does not repair a person's credit overnight. To the contrary, a bankruptcy could actually adversely affect a person's credit score and make it more difficult to get loans. However, this only lasts for a time, and many lenders are willing to cut a break to those who recently filed bankruptcy.

Secondly, a bankruptcy prevents a creditor from collecting on a loan, but it does not go a step further and require that creditor to remove a debtor's name from a loan. Even if they can no longer try to enforce their loan, banks may choose to leave a debtor's name on their accounts.

Finally, although a lender cannot report delinquent payments following a bankruptcy, a lender may still foreclose on its loan if a debtor has fallen behind. Moreover, the creditor may report the foreclosure on the borrower's credit report, even if that borrower has already filed for bankruptcy.

While Chapter 7 bankruptcy is not a panacea for financial problems, it still is often the best option for a person facing serious financial difficulties. After all, falling behind in payments can adversely affect a person's credit report as well; only in this case, the person could continue to get further and further behind. Even if a person gets no other benefit from it, Chapter 7 bankruptcy can still be a financial lifesaver because it can stop a money bleed from spiraling completely out of control.

Source: Fox Business, "Will HELOC stay on credit report post-bankruptcy?," Justin Harelik, May 7, 2013

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