You are in debt and your heart is full of anxiety. Are you considering filing for bankruptcy? Well, the bankruptcy filing is stressful, but an essential step. It may help you deal with your financial ruin. However, prior to making this decision, you should have a clear idea of the bankruptcy filing process. Here are 7 facts you need to know about filing for bankruptcy.
There are a few types of bankruptcy
First of all, you should know that there are a few types of bankruptcy. This means that you should determine exactly which type is the best option in your case. To achieve this goal you had better explore the main types of bankruptcy in detail. Each of them has certain restrictions and requirements.
- Chapter 7, also known as ‘’liquidation’’ gives you the opportunity of discharging most of your debts. This includes loans, as well as credit cards. This type of bankruptcy requires you to sell your non-exempt assets. In this way, you can pay back your debts. It’s worth noting that people who choose this type usually succeed in preserving most of their assets.
- Chapter 13 bankruptcy lets you reorganize your debt. That’s why it is often referred to as ‘’reorganization’’ bankruptcy. In this case, you have a repayment plan. You should pay back your creditors during a certain period of time. A bankruptcy filing under Chapter 13 may last from three to five years. Further, in order to become eligible for filing Chapter 13 bankruptcy, you should have a regular income. The reason is that it is necessary to make certain payments on a monthly basis.
Bankruptcy affects your credit
Prior to filing for bankruptcy, you should know that it has a negative impact on your credit history. Actually, it may stay on your credit report for 10 years.
In addition to that, you will have to inform your future employers about your bankruptcy filing. Also, you should mention it on medical forms and government official reports as well. Although you may have filed for bankruptcy a long time ago, you still have to state it on certain official documents.
Thus, before the bankruptcy filing, you should make sure that it’s the best solution for you. You should realize that it may drop your credit score by a significant amount.
Unfortunately, you may face difficulties when trying to take a loan for purchasing a house or for covering the costs of your kid’s education. Thus, because of the bankruptcy filing, you may have fewer chances of having your loan approved. Another downside of the bankruptcy filing is that it becomes public.
Not all debts are discharged
If you think filing for bankruptcy under Chapter 7 means that all your debts are discharged, you are mistaken. You should keep in mind that not all types of debts are discharged. This list includes the majority of student laws, child support, many taxes, etc. Moreover, creditors have the legal right to object to the discharge of the debt. In case they succeed in winning the case, you owe them the money. In other words, you shouldn’t think that bankruptcy filing may solve all your financial problems.
Your income is important
If you are going to file for bankruptcy, then your income is essential. Sometimes, certain people fail to file for bankruptcy because of their income. Sometimes a person isn’t eligible to file for bankruptcy under Chapter 7 if he/she makes a significant sum of money. In this case, you have to file for bankruptcy under Chapter 13. In fact, the sum of money that you make affects the way your debt is restructured.
Bankruptcy filing solve all your financial problems
You are probably thinking bankruptcy filing will become the solution to all your financial problems. Well, this is not true. Don’t expect a quick fix for everything. You may lose some of your assets. You should know that bankruptcy has not only advantages but disadvantages as well. It may affect your credit card history. That’s why try to understand what is the root of your financial ruin and try to avoid it later on. It’s a good idea to turn to a financial coach who can help you change your money spending habits. You also have the option of having credit counseling regularly.
You have other options
The bankruptcy filing is not the only option that you have. Here are other variants as well.
- Renegotiating your debts
You can start negotiating with creditors and convince them to adjust the terms of your loan. Make sure that you have all the agreements in the written form. In fact, it isn’t an easy task. However, creditors would prefer to receive some money than nothing at all.
Do you have a decent credit? Then, consolidating your high-interest debt into a loan which has a smaller interest rate is a wise decision in this situation.
In conclusion, even if you appeared in such a complicated situation, you shouldn’t fall into despair. You should always keep your head up. Don’t be afraid to start everything again. Don’t feel upset, instead, use your energy to It’s essential to note that prior to filing for bankruptcy; you should consult with an experienced and knowledgeable bankruptcy attorney. Your lawyer will analyze your case and can advise you what type of bankruptcy is right for you.