Posted by Larry Hurt

What You Need to Know About Bankruptcy

What You Need to Know About Bankruptcy

While this is a scary option for many people, there comes to a point where the best move is to file for bankruptcy. It is nice to know that when you have a financial crisis, you have some options as well. Over the years, there are new bankruptcy laws that offer benefits alongside drawbacks as well.

Before settling for bankruptcy, be sure to talk to your lawyer and know if it is the best option. This article explores what everyone needs to know about bankruptcy. Bankruptcy comes in two forms.

Chapter 7 Bankruptcy

Often called liquidation bankruptcy because it will get rid of many of your unsecured debts. It will take care of credit cards, personal loans, and others. Some requirement you need to meet are:

  • Have some amount of money

  • Might have to sell non-exempt assets

The process spans about three or four months

Chapter 13 Bankruptcy

Also known as reorganization bankruptcy, will put you on a repayment plan. With this option, you will pay your creditors on time. You will not have to liquidate any property, but it might span an average of five years. You need to have regular payment to qualify for this.

Having discussed the type of bankruptcy, here are other things you should know before attempting it: 

Your credit Will take a hit.

One major disadvantage of bankruptcy is that it can destroy any good credit you have built over the years. Sadly, it will also be on your credit report as a red mark for a long time, sometimes as long as ten years.

Also, you must declare the bankruptcy to prospective employers, state or local government officials, and medical reports. Hence, this is a process that will hunt you for years, even after you might have forgotten about it.

It is like annoying insects that follow you around for years. With this, be sure you have no other road to turn to before considering it. Your overall credit score will drop by a significant amount. This means your ability to access loans, get a mortgage to buy a house will be affected.

You Cannot Discharge Some Debts.

Sadly, bankruptcy is not a cure-all to your financial crisis. Bear in mind that the process cannot discharge all debts. Bankruptcy will not help those who owe child support or back taxes. This is why you should have considered all options before considering bankruptcy.

If you have debts that will not go with bankruptcy, here are other options to consider:

  • Credit counseling

  • Loan refinancing or modification

  • Credit card consolidation

There are Costs and Requirements 

You will have to obey the orders of the bankruptcy court and your lawyer when going through bankruptcy. There is a chance you will have to surrender all your credit cards. Sadly, you will be instructed on what you can and can't spend on.

You will have to pay lawyers a flat fee or fee based on the amount of your debt. For people filing for chapter seven, you cannot add it to your bankruptcy proceeding. Hence, the fee will have to be paid upfront. 

As evident, the type of bankruptcy you want to go for will determine what you will pay. Don’t be carried away by low fees bankruptcy lawyers claim when advertising. You are better off with an experienced lawyer.

Bankruptcy will not fix everything.

People go for bankruptcy to get a fresh start. Sadly, it is not always so as you might lose some of your assets on the journey.

Besides, your best approach is to know what brought you to the situation in the first instance, alongside how to avoid it. The fact that bankruptcy acts like a red stain on a white cloth make it critical you are sure you have exhausted all options.

In conclusion 

Be sure to talk with your financial adviser about adjusting your spending habit. What moves you can make in the future to come up with smart money choices. Credit counseling will be of tremendous help in this situation.

Bear in mind that paying your bills as soon as you possible will help you. Also, desist from using your credit card in addition to your income. Be sure to cut your coat according to your coat; it will go a long way in avoiding this financial mess.

Larry Hurt
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