Bankruptcy
If you are drowning in personal debt you are probably considering filing for bankruptcy. It seems so easy: you fill out a form, the government wipes out all your debt and in a few short years you can start over with a clean slate, right? Well it doesn’t happen quite like that and there are definitely some negatives that go along with those positives. You need to be sure you understand the breadth of impact that filing bankruptcy will have on all aspects of your life and then armed with that knowledge, whether it continues to be a wise decision. Read on below for more details on bankruptcy.
Types of Bankruptcy
The two basic types of bankruptcy that you can file for in the United States are Chapter 7 and Chapter 13. Chapter 7 bankruptcy clears all eligible debts within 4 or 5 months of filing. If you have assets such as a house, car, boat etc., these items will be confiscated to liquidate and pay to creditors. However, if you have no assets, as those filing for bankruptcy often don’t, you essentially have nothing to lose and this option is all the more enticing.
Chapter 13 bankruptcy (also known as reorganization bankruptcy) is for people who want to pay off part of their debts over a period of three to five years. This is usually the option that individuals with non exempt assets (a house, car, boat etc.) take in order to keep their assets from being liquidated. So, if you don't want to lose your house when you claim bankruptcy you should file for Chapter 13, but unfortunately not everyone can qualify for this type. For this option you must have a steady, predictable income that is sufficient to pay daily expenses with some left over to pay down debts each month. Unfortunately it is a double edged sword because many individuals trying to file a Chapter 7 bankruptcy will be forced into Chapter 13 because of their steady income that gives them the means to eventually pay off their debt and those without a job will be forced to give up their assets when they are only eligible to file Chapter 7 bankruptcy.
Is Bankruptcy the Right Move for You?
If you have non-repayable debts, bankruptcy may be the best solution, giving you a chance to start over. Once you file bankruptcy the phone calls from creditors will stop and according to bankruptcy law, creditors cannot file a lawsuit against you, garnish your wages or demand payments. However, if you have secured debt such as a lien on a car or home, filing bankruptcy provides no protection from these items being liquidated. Nor does it give you protection from paying money owed to the government. If you owe money on your taxes you will be forced to pay it back no matter what.
Regardless of how enticing bankruptcy may be, it should always be a last resort and used only once other methods of debt control such as debt consolidation have been exhausted. If your debt is somewhat manageable, perseverance in paying it down on your own can help keep your credit score in decent standing, as filing bankruptcy badly affects the credit points of a person. When you file for bankruptcy it is on your credit record for 7 to 10 years and red flags you as a credit risk for potential creditors. There are, however, secured credit cards available that allow you to slowly re-establish your credit rating during this time; but obtaining a personal loan is highly unlikely.
Filing Bankruptcy
Filing bankruptcy isn’t free. It costs about $300 and the applicant is never guaranteed approval. If you have big financial problems and are considering filing bankruptcy it is very important to get a professional opinion and ensure that you are making the right decision based on your unique financial situation. Consider applying online for a free bankruptcy evaluation with an attorney who can give you sound, knowledgeable advice on how to handle your particular circumstances.