Bankruptcy is a terrifying term for most people. Many who are considering filing for it are already in a highly stressful situation. Bankruptcy is a tool that exists in order to give people a second chance.
This is usually the case when there does not appear to be any viable alternative. Just be certain that it is the right tool for your situation. Consider the following before filing for bankruptcy.
1Know The Two Types Of Bankruptcy
One type of bankruptcy is Chapter 7 bankruptcy. This essentially eliminates all of your debts (excluding student loans). The process is very straightforward, quick, and simple in most cases. There are certain requirements that must be met. Contact an attorney or do some research online.
The second type of bankruptcy is Chapter 13 bankruptcy. This is like a bankruptcy payment plan. If you don't qualify for Chapter 7, Chapter 13 is the alternative. You would make a single payment to a trustee, and the money would be dispersed to your creditors. This usually lasts from three to five years.
2Consider An Alternative
Sometimes, bankruptcy is an effective choice, but sometimes, it is not. Consider the possibility of cutting back on your expenses. You can also get a part-time job.
Frequently, if you let your creditors know that you're considering bankruptcy, they will accept a reduced amount as payment in full. After all, getting something is better than nothing. You might be able to settle your debt for as little as 20% of the real balance.
3Learn Which Debts Won't Be Discharged
There are two big debts that are not covered with bankruptcy. These are student loans and child support delinquency. A federal judge can choose to discharge your student loans, but it's highly unlikely.
4Know What Will Happen To Your House
What happens to your house after filing for bankruptcy varies dramatically from state to state. Some states allow you to keep up to $1 million of equity in your home. Other states only allow $10,000.
Find out before you file. You might be forced to sell your house if you file for Chapter 7. Chapter 13 always enables the debtor to keep the home.
5Anticipate What Can Happen To Properties
If you file for bankruptcy, what will happen to your properties other than your home? It is possible that you might be forced to sell some of your assets, including your car (depending on the equity and state you live in). Again, find out before you file the paperwork.
6Check On Your Pension, 401(k), And IRA
In most states, your pension, 401(k), and IRA are free from bankruptcy proceedings. Do your homework! Check if these items are truly available in your state.
7Consider Your Co-Signers
If you file for a Chapter 7 bankruptcy, any co-signers you have will get stuck with your debt. If you file for Chapter 13, co-signers are in the clear. Consider your co-signers when deciding which type of bankruptcy to file.
8Know How It'll Affect Your Personal Life
Other people will probably find out about your bankruptcy; you'll have to disclose everything to the court, and most records are public. In addition, bankruptcy notices are frequently printed in the local paper by law. Bankruptcy provides a viable way to get a new start if you are way over your head with debt. However, it might not be the best choice for you if you can avoid it with other options. With bankruptcy, there is a major blemish on your credit report for at least seven years, but it is not the death of your credit.
Once all your debts have been eliminated, and you've gone through a waiting period, you might be surprised to find that you will actually have pretty decent credit. In fact, you will probably receive many credit card offers. After bankruptcy, companies can feel more comfortable that you'll pay back your debts for two reasons - you probably don't owe any more money, so you'll be much more capable of paying back any new debt if you have little to no existing liability, and you can't file for bankruptcy again for several years. Bankruptcy won't be an option for quite a while. This can make creditors more comfortable with giving you credit.
Consider whether or not bankruptcy makes sense for your situation. As with any legal issues, an attorney can be invaluable. Consult with one while looking for solutions to your financial troubles.
Boost your credit. Make your life better. You'll be happy that you did!