If you’ve come upon some hard financial times, one option that might have occurred to you is filing for bankruptcy. This is an action that many people have taken to help with their financial troubles, but unfortunately, not all of those people knew what they were getting into. Bankruptcy is complicated procedure, and it is not right for everyone. Below are a few things that you should know before making a decision that has long-lasting implications.
What Is Bankruptcy?
First, you should know exactly what bankruptcy is. A person files for bankruptcy when they are facing a home foreclosure, or any type of financial insolvency. Bankruptcy is the legal way to be rid of your financial troubles, but it comes with some heavy consequences. If your bankruptcy filing is approved, you will be given a set time in which you need to repay your debts, but during that time your assets will not be able to be confiscated.
Kinds Of Bankruptcy
There are two main types of bankruptcy filings, and you will have to choose one based on your own circumstances – Chapter 7 and Chapter 13. Chapter 7 is typically chosen by lower-income people with few assets, but with a large amount of debt. In a Chapter 13 filing, you are given a reasonable repayment plan, typically between 3 and 5 years, and allows you to buy time against foreclosures. There is a lot that goes into picking between the two, and if you are unsure, consider consulting a bankruptcy lawyer.
There are a few requirements that you need to meet in order to file for bankruptcy. First, your income will play a large role in determining which Chapter you are eligible to file for. In addition, it will be required that you attend a money management program, and is recommended that you meet with a credit counselor before you can file. For more on the requirements needed to file for bankruptcy, you can visit this link.
Benefits and Drawbacks
The biggest reason that a person would file for bankruptcy is to get their financial health back in order. Sometimes debt has accumulated to a point where you can no longer make payments, and rather than risking losing your home or other assets, you file for bankruptcy. This should be seen as a last resort measure, but it is available to you if you need it.
However, it comes at a cost. Filing for bankruptcy will harm your credit score, and this penalty will not go away for a long time. Having a bankruptcy on your credit report will hurt your chances of getting things like a loan or mortgage down the road. Bankruptcy is a mark that can impact your credit score for up to 10 years, so it is not a decision that you should take lightly.
What Are Your Alternatives?
As we have said, bankruptcy should be seen as a last resort. If you can find another route to pay off your debts, without losing your assets, you should consider those before filing for bankruptcy. For example, if you owe money to several different creditors, then consider taking out a consolidation loan. With this, you combine all of your loans into one, and are given one monthly payment to make rather than several.
You can also work directly with your loan providers and see if you can work out a deal to have lower monthly payments. Creditors are typically willing to work with people, as they would rather get their money back later, rather than have you file for bankruptcy. This article will explain some other alternatives to filing for bankruptcy, and hopefully one of them will work for you.
How To File
If you’ve weighed all of your options, and considered the drawbacks against the positives, and are still set on filing for bankruptcy, here’s how to do it. First, you should strongly consider hiring an attorney, as there is a lot of legal paperwork. If you want to go about it yourself, you’ll need to download the packet of information from the U.S. Courts website, and after filling them out, turn them into a bankruptcy court in your state.
Take Your Time With The Decision
Don’t rush into a bankruptcy filing. There is a lot that you need to know, and many alternatives out there that may be a better solution. Only file for bankruptcy after you have given it a great deal of consideration, and weighed all of your options.