Bankruptcy

What It’s All About And What It Means For You

Bankruptcy may seem like just the thing to get creditors off your back and restore some sanity to your life. But you should be aware of the consequences first. Bankruptcy is a life changer, and it’s not something you should just jump into.

What Is Bankruptcy?

Bankruptcy is when an individual or business legally declares that they are unable to pay back their debt. The result of the process is to either eliminate the debt or pay it back under the protection of a federal bankruptcy court.

The Two Types Of Bankruptcy – Liquidation And Reorganization

The different kinds can be confusing, but there are two main kinds that most people file. They are “liquidation” and “reorganization.” The most common liquidation type is Chapter 7. This kind allows your debtors to take some things from you (assets) to sell in order to get back their money. They can’t take everything though; some things are protected, like your house. The most common type of reorganization filing is Chapter 13. You keep all your property, but you have to make monthly payments for a set period of time, usually 3 to 5 years.

Bankruptcy Really Changes Your Life

The whole process causes lifelong damage and major changes in your life. It’s not an easy matter of wiping the slate clean and starting over. Ranked along with divorce, losing a loved one or a debilitating disease, it is considered one of the most life changing events that can happen.

Bankruptcy Ruins Your Credit

It also carries a stigma. Worse than this, it ruins your credit for many years. Chapter 7 stays on your credit report for 10 years. Chapter 13 stays there for 7 years. Before filing, you may have to take classes on credit and debt management. You’ll have to start at the very beginning and reestablish your credit all over again. You’ll also be unable to get loans. Probably the worst effect it has is that it gets harder to buy a house.

How To File Bankruptcy

The first step is to get credit counseling. The law now requires this. You have to get credit counseling from a government approved source within 180 days before filing. While you don’t need to hire a lawyer, it is highly recommended. This is a very complicated process and most people can’t do it alone. If you can’t afford an attorney, there are free legal services that can help. You’ll have to go over all of your assets and personal finances. You should also be aware beforehand of all the fees you’ll be required to pay.

Alternatives To Bankruptcy

Because bankruptcy is a traumatic, life-changing and credit-ruining affair, consumers are highly advised to exhaust all other options first. Only file for bankruptcy if you’ve tried everything else first. Before filing, here are a few things to consider trying:

  • Negotiate with your creditors. They’d rather have the money than not get it, and they have no interest in seeing your credit ruined.
  • Get bill collectors off your back. There are things you can do to stop them from calling and harassing you.
  • Seek non-profit credit counseling. These organizations can help you consolidate your loans and get them paid.
  • Economize. Downgrade and live a little more simply until you get those debts paid off.

Bankruptcy is a last resort, so try everything else first.

More on Bankruptcy

  • Bankruptcy Attorney. Part of declaring Bankruptcy is all the legal processes surrounding it. This involves choosing an attorney. Here’s what to look for…
  • Bankruptcy – Should you File?. Debt getting to be too much? Thinking about filing for bankruptcy? Not all loans will be forgiven, and it may change your standard of living.
  • The choice to declare bankruptcy was once seen as one that could destroy someone’s life. With General Motors doing the same, has that all changed? Can I Declare Bankruptcy?
  • Bankruptcy On Credit Reports. Declared bankruptcy recently? Worried about rebuilding your credit rating? There’s things you can do to help start the process.
  • Bankruptcy Automatic Stay. When declaring bankruptcy, an automatic stay is put on all your assets. This protects your assets from being taken away from you.
  • Costs To Declare Bankruptcy. How much does it cost to declare bankruptcy? Is there such a thing as being too poor to declare? Make sure you’re not ignoring any of your options.