Should You File for Bankruptcy?
Having sufficient income to pay your bills is fundamental to staying out of debt. However, life doesn’t happen that way. Unexpected problems arise, such as the loss of a job, divorce, illness, or just over-extending ourselves. At first, it may be helpful to borrow money from credit cards or loans. However, if you are only paying the minimum payments, it is generally going to take 15 years or so to get out of debt, and that’s without incurring ANY new debt during that time. If you feel like you are borrowing from Peter to pay Paul, many times your best option will be to file bankruptcy. Before filing one, it’s important to know what bankruptcy means.
What is Bankruptcy?
Bankruptcy is simple. It is a system of federal laws that allow individuals to get relief from debts and make a fresh financial start. It is specially designed to help the unfortunate but honest debtor forge a new and fresh future without pressure and harassment from creditors. Your creditors cannot collect on pre-existing debts or harass you.
Types of Bankruptcy for Individuals
The most popular forms of bankruptcy are chapter 7 and chapter 13. A chapter 7 bankruptcy erases unsecured debts, such as credit cards and medical bills. It’s typically the best option when you have little or no assets. A chapter 13 bankruptcy, on the other hand, reorganizes and adjusts your debt with the use of a repayment plan. In a Chapter 13, you will usually be paying no interest on any of your debts. If you have assets, or if you have a lot of debt that a Chapter 7 won’t cover, it may be the best option for you.
Advantages of Bankruptcy
The advantage of filing for bankruptcy is an automatic stay. It is an extremely powerful tool that bankruptcy law provides. What does automatic stay mean? It notifies your creditors to stop collecting money from you. It even prohibits your lender from filing lawsuits, sending letters, garnishing wages, and seizing your assets. Upon the filing of the bankruptcy, your creditors must cease all collection efforts against you, including all phone calls and harassment.
Once you complete your bankruptcy case, the court will issue a discharge of debts. This means that you no longer owe on them and they are gone permanently. The process is most times a fairly easy one, but it is imperative that you hire an experienced attorney to help you navigate through the legal system.
Disadvantages of Bankruptcy
Making your creditors disappear is a dream come true for most people. You can say goodbye to creditor harassment and other threats. But remember that there is no such thing as a perfect solution. There are certain debts that a bankruptcy will never discharge, like child support.
Filing for bankruptcy will affect your credit score, and will stay on your credit report for 7-10 years. However, there is a lot of misinformation about how bankruptcy affects your credit. If you have perfect credit, then yes, your score is definitely going to take a hit. However, most people who are interested in bankruptcy have a large amount of outstanding debt listed on their credit report. Because of this, I see many people’s scores increase after filing bankruptcy because the bankruptcy removes the debt.
Another negative is that most of the “best” credit cards will immediately issue a denial if you have a bankruptcy showing on your report. That does not mean you can’t get credit cards after filing. As a matter of fact, you will most likely get many credit card advertisements after your discharge.
If you would like to see how bankruptcy would be advantageous to you personally, please contact my office for a free, no-pressure, consultation.