Should I File for Bankruptcy?
The term “bankruptcy” often comes with many misconceptions. One of the most common is that going bankrupt means you have no money left. This is not necessarily the case. Bankruptcy, instead, is defined as being unable to repay your debts.
But if you’re having trouble paying off debts, how do you know when filing for bankruptcy is the right move for you? Knowing what happens during bankruptcy and the impacts it will have after the fact can help you make the right decision for you.
What Happens When You File for Bankruptcy
When individuals file for bankruptcy, they are typically either filing Chapter 7 or Chapter 13 bankruptcy. Chapter 7 bankruptcy is often known as liquidation bankruptcy. In Chapter 7, the individual liquidates nonexempt assets, such as family heirlooms, stocks, and bonds, to pay off their unsecured debts, such as credit card bills or medical debt. Chapter 13 bankruptcy is often known as a reorganization bankruptcy. It’s generally meant for those who earn too much to qualify for Chapter 7. Through Chapter 13, the court sets up a debt repayment plan based on the individual’s income. Generally, the repayment plan involves set monthly payments over a three- to five-year period. Both forms of bankruptcy can deal with most kinds of debt, with a few exceptions. Most often, bankruptcy does not discharge student loan debt. Additionally, it also may not discharge back-owed child support and alimony.
The Impacts of Bankruptcy
Filing for bankruptcy should not be taken lightly. The impacts of bankruptcy are severe and long-lasting and can seriously affect your financial future. In both Chapter 7 and Chapter 13, you could lose property and assets. And, depending on which kind of bankruptcy you file, it could stay on your credit report for up to 10 years. When lenders see a bankruptcy on your report, they will be much less likely to work with you for a mortgage, car loan, credit card, etc. Your credit score itself will also be severely damaged. Because of these negative impacts, bankruptcy should be considered a last resort.
Alternatives to Bankruptcy
So if bankruptcy should be a last resort, what can you do instead when you’re struggling with debt? You may consider other debt relief options, such as debt settlement, consolidation or credit counseling. Debt settlement involves you or a debt professional, such as a debt attorney, negotiating with creditors to pay off your debt for less than you owe.
Consolidation is the act of taking all of your loans and putting them into one loan. This one loan may have a lower interest rate than your separate loans had, and it will simplify your monthly payment. Consolidating your debt doesn’t lower your debt but can help you pay less over time with a lower interest rate and can help keep you organized with your payments.
Credit counseling also does not reduce your debt. Instead, it is guidance provided for free by a nonprofit agency. Credit counselors can provide resources and education and can help set you up on a debt repayment plan.
Deciding whether to file for bankruptcy is an incredibly serious decision to make. The consequences that result from bankruptcy can affect your financial future for years and years to come. As a result, exploring other debt relief options first should most certainly be your first step. These other options can help you take care of your debt with much less severe repercussions.
If you’re struggling with debt, consider consulting a financial professional, such as a debt attorney. At Tayne Law Group, we can help you find alternatives to bankruptcy that work for your situation. Contact us today to start your path out of debt.
