American consumers typically view bankruptcy as a last resort, one that is sought after an individual goes through all other possible means of debt relief. This is not only because of the financial toll it might take, but also because of the stigma that’s part of the parcel. However, bankruptcy can work as an effective solution to rebuild a sound financial life for many. So, might you benefit by filing for bankruptcy?
Factors You Need to Consider
You may consider filing for bankruptcy after accounting for these factors:
- Negotiating with your creditors has not yielded desirable results.
- You have been through credit counseling.
- You risk losing your home to foreclosure.
- You wages are being garnished.
- Your bank account is being garnished.
- You are being sued by creditors.
- You are using credit cards to pay for everyday expenses.
- You plan to withdraw money from your 401(k) account to keep up with expenses.
- You have significant medical debt.
Savings and Assets
Upon filing for bankruptcy, you have to provide a list of all your assets. While some assets are exempt from bankruptcy, your savings are typically non-exempt. This means you stand to lose your savings when you file your bankruptcy. If you don’t have much in the form of savings, and if the worth of your assets is considerably lesser than the amount you owe, you might consider filing for bankruptcy.
Pros and Cons of Filing for Bankruptcy
Filing for bankruptcy comes with its share of advantages and disadvantages. While almost every case is different in some way, this is what you may expect if you decide to move forward.
- There is an immediate suspension of most collection-related activities.
- You get the ability to discharge or eliminate different types of unsecured debt.
- Some exemptions give you means to maintain ownership of different assets such as your home, automobile, and wedding ring.
- You may start rebuilding your credit score soon after your bankruptcy discharge ruling.
- You will lose access to your credit cards and other forms of credit.
- You might lose your home and other assets.
- There is an immediate negative effect on your creditworthiness.
- A Chapter 13 ruling stays on your credit report for seven years, and a Chapter 7 ruling for 10 years.
- You would have difficulty in getting a loan or a mortgage. Even if you do, you’ll end up paying high interest.
- You might be denied federal and state tax refunds.
- You would still be responsible for non-dischargeable debts such as student loans, alimony, child support, and government fines.
What Are Your Options?
Go through credit counseling and explore all possible avenues you might have. Speak with your creditors and determine if debt settlement might work well for you. Once you decide to move forward and file for bankruptcy as an individual, you get two basic options from which to choose.
- Chapter 7. To qualify, your income should be lesser than the median income of your state. Chapter 7 bankruptcy involves a liquidation proceeding where a court-appointed trustee sells your non-exempt property with the aim of using the money to repay your creditors. The entire process typically takes three to four months.
- Chapter 13. If you file for Chapter 13 bankruptcy, you get to hold on to your assets by making payments according to revised repayment plans over the course of three to five years.
Filing for bankruptcy can give people who are struggling with their finances the means to a fresh start. However, you might still be responsible for making different types of payments. Since there are various intricacies involved in the process, getting in touch with a bankruptcy attorney at the earliest might be in your best interest.