Bankruptcy is an option under the federal law meant to shield people and enterprises from their creditors. The primary goal of bankruptcy is to offer individuals debt relief and a fresh financial start within the provisions of the law.
With worsening economic conditions, credit card bills, and other unsecured loans threatening to pull you under, it is reasonable to think that bankruptcy is an expressway for a quick refresh and restart. However, it has consequences, and it is prudent that you carry out due diligence before taking the leap.
Before You File for Bankruptcy….
1. Bankruptcy Options
Should you consider bankruptcy, there are two common bankruptcy options. They include:
Chapter 7 Bankruptcy
This option is popularly referred to as liquidation bankruptcy typically because it discharges most of your unsecured debt, including credit cards and personal loans. Filing a chapter seven bankruptcy takes 3-4 months, and you have to pass the means test for you to be eligible for this option.
You may also be forced to sell some of your non-exempt assets, but more often than not, filers can keep most of their assets.
Chapter 13 Bankruptcy
Chapter 13 is also known as the reorganization bankruptcy. This alternative will set you on a repayment plan and require you to back your creditors over a period of time. The process may take three to five years, but your property is not liquidated.
For you to be eligible for this type of bankruptcy, you are required to have a steady source of income to make payments for the monthly installments.
2. Bankruptcy Will Affect Your Credit
In the unfortunate event that you file for bankruptcy, it wipes clean any of your good history of credit. Worse still, a bankruptcy filing can stain your credit report for up to 10 years. At the very least, bankruptcy trails you for decades after you file for bankruptcy.
You will have to declare any bankruptcy filings to future employers, lending institutions, medical forms, and all other official forms. This may negatively impact your chances of securing a mortgage for your dream home or financing for your child's education.
3. Some Debts Cannot Be Discharged
You could be in for a rude shock if you believe that filing a bankruptcy is the fix-all solution for your financial problems. It is wise to understand that not all debts can be discharged through this process.
If you are owed arrears in taxes and child support, then bankruptcy has little to offer. Other debts that cannot be discharged under bankruptcy include:
- Court-ordered alimony
- Reaffirmed debt
- Government fines and penalties
- Court fines and penalties
- Some Student loans
4. Bankruptcy Filings are Public
Your finances will be subject to myriad screenings for your choice of filing, and this information will be open to everyone.
After all, is due and done, the names of persons in bankruptcy court are published online and in the local dailies. This means you lose significant control and privacy as far as your finances are concerned.
5. Bankruptcy Comes at a Cost
Obviously, bankruptcy filing comes at a cost in court filing fees, lawyer fees, and other miscellaneous costs. The court fees rest at around $200 unless, in the instance, you apply for a bankruptcy fee waiver.
Attorney fees may be payable upfront, especially if you are filing for a chapter 7 bankruptcy. Chapter 13 bankruptcies tend to cost more since they stretch over several years.
6. Filing for Bankruptcy Won't Fix Everything
As much as you wish that bankruptcy will guarantee a fresh start with your finances, it is not a quick fix for everything. You may have your money rifled through or lose some of your valuable assets in the process. On the flip side, creditors may challenge your bankruptcy request leaving you with no option other than paying up.
Stopping the Buck
Bankruptcy is not the best option and should only be sought as a last resort at all cost. The good news is, there are a lot of alternatives to face your financial problems like a champion and still hold your head high if you are willing to take responsibility.