Personal Bankruptcy Pros And Cons – The right time to declare bankruptcy is after you have exhausted all other options to meet your financial obligations but are unable to pay your debts. It may be time to declare bankruptcy, if, for example, you have large debts that you cannot pay, are behind on your mortgage payments and are at risk of foreclosure, or if you are called by a bill collector.
Bankruptcy can reduce or eliminate your debt, save your home and keep bill collectors at bay. But it also has serious financial consequences, including long-term damage to your credit score. That, in turn, can affect your ability to borrow in the future.
Personal Bankruptcy Pros And Cons
Bankruptcy cases are handled by federal courts, and federal law defines six different types. The two types most often used by individuals are Chapter 7 and Chapter 13. Chapter 11 bankruptcy is for businesses.
The Treatment Of Assets In A Personal Bankruptcy
Chapter 7 bankruptcy, the type most people file, is also called straight bankruptcy or liquidation. A court-appointed trustee can sell some of your assets and use the proceeds to pay off part of your debt, after which your debt is considered discharged.
Certain types of assets may be exempt from liquidation, subject to certain limitations. That includes your car, your clothing, and household appliances, your business equipment, your pension, and a portion of all the assets you own in your home. You must list the assets you claim as exempt when you file for bankruptcy.
Chapter 13 bankruptcy results in a court-approved plan to pay all or part of your debt over a period of three to five years.
Some of your debts can also be paid off. Because it does not require liquidating your assets, Chapter 13 bankruptcy can help you keep your home, while still paying the settlement.
Every Type Of Bankruptcy Explained
Some types of debt generally cannot be discharged through bankruptcy. This includes child support, tuition, student loans, and certain tax obligations.
There are several steps involved in a bankruptcy filing. Failure to do so may result in your case being dismissed.
Before filing for bankruptcy, you must complete a credit counseling session. A counselor should review your personal situation, provide advice on budgeting and debt management, and discuss other options for bankruptcy.
Filing for bankruptcy involves filing a bankruptcy petition with a financial statement showing your income, debts, and assets. You will also be required to submit to a means test, which will determine if your income is low enough to qualify for Chapter 7.
Will My Personal Bankruptcy Become Public?
If you do not qualify for Chapter 7, you must file for Chapter 13 bankruptcy instead. You also have to pay the delivery fee, although it is sometimes waived if you can prove you can’t afford it.
You can get the documents you need from the bankruptcy court. If you do the work of a failed lawyer, which is usually a good idea, they should also provide it.
After you file, the bankruptcy trustee assigned to your case will schedule a meeting of creditors, also known as a 341 meeting under bankruptcy law if necessary. This is an opportunity for your person or business to ask questions about your finances and your plans, if any, to pay them.
Your case will be decided by a judge based on the information you provide. If the court finds that you have tried to hide assets or commit other fraud, you may not only lose money but also be prosecuted.
Bankruptcy Pros And Cons: Don’t Declare Until You Read This
After filing for bankruptcy – but before your debt is discharged – you should take a debt education course, which will provide advice on budgeting and money management. Again, you must get a certificate of attendance. You can find a list of authorized debt service providers and trustees at the bankruptcy court or at the Department of Justice.
Assuming the court decides in your favor, your debt will be settled, in Chapter 7. In Chapter 13, a payment plan will be approved. Having a discharged debt means that the creditor can no longer try to reach out to you.
Bankruptcy has a negative impact on credit history. A Chapter 7 bankruptcy will stay on your credit report for 10 years, while a Chapter 13 bankruptcy will generally stay for seven years.
There are also limitations on how long you can pay off your debt through bankruptcy. For example, if you have debts paid off in Chapter 7 bankruptcy, you must wait eight years before you can declare bankruptcy again.
Can A Quiz Help You Understand Whether You Should File Bankruptcy?
But because filing for bankruptcy is difficult, and must be done correctly to achieve it, it is generally not a good idea to try it without the help of an experienced bankruptcy attorney.
Negotiating with creditors, without involving the court, can be beneficial for both parties. Instead of risking foreclosure, the lender can agree to a payment plan that reduces your debt or spreads the payments over a long period.
If you can’t pay your mortgage, it’s worth contacting your loan officer to find out what options you have to avoid bankruptcy. This can include:
If you owe money to the IRS, you may be eligible for a settlement agreement, which allows you to settle with the agency for less than what you owe. In some cases, the IRS also offers monthly payment plans for taxpayers who are unable to pay their taxes all at once.
Understanding The Pros And Cons Of Debt Resolution Programs
Beware of unsolicited claims from companies that claim they can protect your home from flooding. They could be nothing more than con artists.
Bankruptcy laws exist to help people with unmanageable debts – often from large medical bills or unexpected expenses. But it’s not an easy process and has a negative impact on your long-term finances.
Before filing for bankruptcy, explore all your options and prepare for the worst. If you decide that bankruptcy is the only option, remember that your credit will last for years, but the negative effects are not permanent.
Bankruptcy can erase many types of debt, but not all eligible debts must be eliminated. For example, student loans are typically not eligible for bankruptcy unless you meet additional requirements, such as proving that repaying the loan will cause irreparable hardship.
Chapter 13 Bankruptcy: Managing Personal Finances Amid Bankruptcy Risk
Bankruptcy usually eliminates credit card debt. However, before filing for bankruptcy and credit card debt, talk to your creditors. They may be willing to negotiate additional costs to avoid losing the entire loan.
A debt management plan is a plan designed by a credit counselor, you and your creditors to help you pay off your debt more effectively. Debt management plans usually require monthly payments and you can’t take out a new loan while you pay off your debt.
Knowing when to file for bankruptcy is key to minimizing financial risk. Filing for bankruptcy can have a serious impact on your credit history, but it can be a great way to manage bad debt.
Consider consulting with a reputable credit counselor to explain all of your payment options before filing for bankruptcy.
Personal Bankruptcy And Your Small Business Loan
By using credit cards carefully in the future and paying your bills on time, you can start building your credit and gradually put it behind you.
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The view shown in this table is from the partnership that comes from the compensation. This compensation may affect how and where listings appear. It does not cover all the offers in the market. Debt consolidation and bankruptcy are two different ways to manage large debts. Anyone can improve your credit (although debt consolidation usually starts). The best option depends on your problem. The bankruptcy system offers several options that can help you online. To learn more, here’s an overview of debt consolidation and bankruptcy.
Debt consolidation combines multiple credit card balances into one loan. You can sign up for the program through a non-profit organization; take out a loan consolidation loan from a bank, credit union, or online lender; or call your credit card directly.
How Chapter 7 Bankruptcy Works, Eligibility, & What Comes Next
If you cannot pay what you owe, the bankruptcy system provides a way to waive your obligation to pay your debts to your creditors. Bankruptcy proceedings are handled by national courts. The two main types of bankruptcy include:
Debt consolidation loans typically have little, if any, effect on your credit score as long as you stay current. But it does show up on your credit report. If the borrower gets bad credit, it may be difficult to get a new loan in the future.
Filing bankruptcy can damage your credit score. Amount of damage
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