To many, bankruptcy is a life-saver, and to others it might be an embarrassing situation. Legally speaking, bankruptcy is a legal tool designed to help you get back on your feet during a financial crisis. The process is overseen by a federal court in which you may petition the court to forgive part or all of your debt. In some instances, you pay a portion of the debt you owe, through the court system, by making monthly payments. While bankruptcy is not for everyone, it is a way out of a bad financial dilemma.
Sometimes things happen in life that cause financial distress, like losing a job or a second income. Oftentimes, bad investments and lost business deals can affect the outcome of one’s financial future. When the unexpected happens, there are ways to bounce back. Although it might take some time to get back your financial security, filing for bankruptcy is, for most people, the best and only option.
What Does it Mean to File Bankruptcy?
Filing for bankruptcy means going to court or a bankruptcy attorney and filling out an application for debt elimination or reduction.The process is not simple and usually requires the assistance of an attorney that specializes in bankruptcy law. There are several types of bankruptcies. However, depending on your specific situation, an expert lawyer can help you determine which type of bankruptcy is best for you.
How Does Bankruptcy Work?
Depending on which type of bankruptcy you file, the two most popular are Chapter 7 and Chapter 13. Each one has its own pros and cons, and should not be entered into without seeking legal advice.
Chapter seven entails specific things that you must do, because you are agreeing to pay off your creditors. This includes selling off your assets such as houses, cars, jewelry, furniture and other assets. The money collected will go toward your debt, and the remaining balance of what you owe is eliminated. However, you are still responsible for paying other debts or bills such as court-ordered alimony, child support and student loans..
Filing for bankruptcy under Chapter 13 is totally different. Chapter 13 allows you to keep your assets like cars, houses and furniture, but you are set up to make monthly payments on a repayment plan. The repayment plan can be set up to be completed in three to five years. When the debt is repaid, the bankruptcy is discharged.
Despite the differences in the two types of bankruptcy, chapter 13 is mostly favored because of the less strict consequences.
What are the Consequences of Filing Bankruptcy?
The consequences of filing for chapter seven bankruptcy include:
- Losing your property and assets
- Bankruptcy on your credit report for 10 years
- High impact on credit reports
- Negative reporting to all three credit bureaus
- Cannot file again for eight years
The consequences of filing for chapter 13 bankruptcy include:
- Negative Impact on your credit score
- Can keep some or all of your property and assets
- Stays on credit report for seven years before falling off
- You can file again under chapter 13 after two years
Can I Restore my Credit after Filing for Bankruptcy?
Yes. After successfully completing the requirements of both chapters of bankruptcy, consumers have gone on to rebuild their credit. After staying on your credit report for seven years after filing chapter 13 and 10 years after filing chapter 7, you can apply for loans and credit loans to help rebuild your credit.
Recap
Bankruptcy provides a solution for anyone who is stuck in a financial rut with no other means of getting ahead. Hundreds of people file for bankruptcy each year, and have successfully completed the required terms. Depending on the amount of debt owed and other related circumstances, individuals are encouraged to seek legal advice from an expert bankruptcy attorney. Bankruptcy is not one size fits all. It is tailored to each individual’s circumstances.
If you have substantial property and assets you want to hold on to, talk to an attorney about filing for Chapter 13 bankruptcy. You get to keep your assets and pay off your debt. If your debt is overwhelming, you might fare better selling off your assets and starting fresh, by rebuilding your credit.
