When you’re in debt, it’s hard to think about anything else. The stress can be overwhelming and sometimes it can seem as if there is no way out from under your mounting financial obligations. If you’re suffering under the yoke of an accumulating financial burden filing for bankruptcy is an attractive option that may allow you to preserve most of your assets.
Before filing though, be aware that while bankruptcy might very well be your best option, it is by no means a financial cure-all. There are disadvantages to filing for bankruptcy too. Following is a list of things to keep in mind if you’re considering filing for bankruptcy.
THERE ARE DIFFERENT TYPES OF BANKRUPTCY
Knowing which type of bankruptcy is right for your particular financial situation is very important. Before you file, you’ll want to decide whether it would be more advantageous to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. It is recommended you consult a Bankruptcy Lawyer before making your decision.
CHAPTER 7 BANKRUPTCY: This form of bankruptcy is also known as “liquidation bankruptcy.” While this is a good way to discharge the majority of your debts (including credit card bills and loans) it does require you to sell off non-exempt assets in order to pay back creditors. Still, most people who file for Chapter 7 bankruptcy are able to preserve the majority of their assets.
CHAPTER 13 BANKRUPTCY: Sometimes called “reorganizational bankruptcy,” Chapter 13 bankruptcy allows you to pay your creditors back within a certain period of time. Reorganizational bankruptcy is a process that usually takes from three to five years. As repayment of debts over time is a key feature of this type of bankruptcy, a regular income is required to qualify. This is the case because certain payments will have to be made on a monthly basis.
FILING FOR BANKRUPTCY AFFECTS YOUR CREDIT
Before filing for either type of bankruptcy, be aware that this course of action will negatively affect your credit score. You will likely experience a significant drop in your score and the effects to your credit report could last up to ten years. The fact that you have declared bankruptcy must be stated on certain official documents, and you will have to tell future employers. Also, bankruptcy is a matter of public record. These are all things to consider before filing.
NOT ALL OF YOUR DEBTS WILL BE DISCHARGED
Filing for bankruptcy will not eliminate all of your debt. Certain financial obligations such as student loans, child support payments, and tax payments will still have to be met. You should also be aware that your creditors will have the right to challenge the discharge of your debt in court. Should the court rule in their favor you will still have to pay the debt. Know before filing that bankruptcy will not solve all your financial problems.
YOUR INCOME MATTERS
How your debt is restructured will depend to a great degree on how much money you earn. For example, if your income is over a certain amount you may not be eligible to file for Chapter 7 bankruptcy. In such a case you will have to file for Chapter 13.
BANKRUPTCY IS NOT A QUICK FINANCIAL FIX
There are many benefits to filing for bankruptcy should the need arise, but there are disadvantages too. There is a good chance you will lose some of your assets, for one thing. As mentioned above, your credit score will suffer. If you find yourself in financial crisis ask a Dayton Bankruptcy Lawyer how to declare bankruptcy. A bankruptcy lawyer can help you choose the bankruptcy or restructuring option that best suits you. They will provide you with options based on your current situation and financial standing.
Even if filing for bankruptcy puts your feet back onto solid ground, so to speak, you are likely to experience more hardships in the future if you don’t identify and address the reasons you found yourself in financial crisis in the first place. Working with a financial coach can help you track and modify your spending habits. Regular credit counseling is always a good idea as well, and especially if your credit has been affected by having filed for bankruptcy.
OTHER OPTIONS TO CONSIDER
Before rushing to file for bankruptcy, you should know that there are other options available to you. The renegotiation and consolidation of debt are two alternatives to filing for bankruptcy.
It is often possible to renegotiate the terms of a loan with your creditor. The process may not be easy, but there are companies you can hire to perform the service for you. In the final tally, creditors would rather collect part of their money than none of it. Should you successfully renegotiate terms with one or more of your creditors be sure to get the new terms in writing.
If you have “decent” credit debt consolidation may be the right course of action for you. Consolidate high-interest debt into a loan with a lower rate in order to catch up on payments and ease the financial pressure that’s been eating at you.
A financial crisis due to mounting debt can be stressful and upsetting. Don’t panic, though, as there are a number of options available to you when it comes to facing out-of-control debt. Bankruptcy (whether Chapter 7 or Chapter 13) may be the right path out of your current predicament, but don’t act too hastily. Bankruptcy is by no means a financial “miracle-drug.” There are many benefits to filing for bankruptcy, but there are disadvantages as well.
Talk to a Bankruptcy Attorney who can help you to decide which option is right for you. Keep in mind also that filing for bankruptcy may not turn out to be the best option for you. What can it hurt to try and renegotiate a few of your higher-interest loans, for example? It is entirely possible (and especially if you make a reasonable income) that debt consolidation may also serve you better than would filing for bankruptcy.