It seems easier than ever to rack up debt these days, and often to an overwhelming number that you can’t feasibly repay. If you find yourself in this situation, you may be contemplating filing for bankruptcy. While it may sound like a relief to wipe your financial slate clean, there are some serious consequences to making that decision. Bankruptcy can severely affect your credit, so it is wise to know all your options and weigh them carefully before you pull the cord.
Why Declare Bankruptcy?
The number one reason people declare bankruptcy is to get out from under the crushing weight of their debt, but there is also another reason people are so eager to file, and that is to get the debt collectors to leave them alone.
Knowing you owe money and are behind on payments or unable to make the payments required can cause a lot of anxiety and stress on its own, so having someone breathe down your neck every day with relentless calls and messages can only amplify that stress. Once a bankruptcy is filed, by law, the creditors must stop calling; this is known legally as an automatic stay. Bankruptcy may also halt the disconnection of utilities such as water and electricity and even stop an eviction progression. Though wiping your debt clean may stop the calls, there are other consequences that you need to be aware of.
Most Common Bankruptcy Filings
Chapter 7 and Chapter 13 are the most common filings for individuals, though there are many types of bankruptcy. If you are thinking of filing either of these, you will need to know the differences between the two to determine which filing is right for you and your financial situation.
With chapter 7, all your non-exempt assets will be sold and divided amongst your creditors to help pay the debt, and any remaining debt will be cleared. This is generally the better option for those who have very few non-exempt assets and whose income isn’t enough to cover the debts that may include medical bills and credit cards.
Chapter 13 is very different from Chapter 7. This form of bankruptcy is designed to restructure your payments to make it easier for you to pay off your debts. This is generally the best option for those who have a large income that can accommodate repayment following the adjustments made. While you are responsible for continuing to pay your entire debt off without any amount being discharged, you can keep your assets as well as bide extra time to pay the debt off, unlike a Chapter 7 bankruptcy.
Understand that both Chapter 7 and 13 will affect your credit and ability to obtain a loan as lenders have more restrictions for those who have filed for bankruptcy. There really is no ideal time to file for bankruptcy; it really depends on what you deem best for you but if you have already tried to negotiate with your creditors, have few assets with a large number of liabilities, are paying debts by getting into more debt, and will take you longer than 5 years to get out from under your bills, bankruptcy may be beneficial for you.
If you decide to file, it is wise to hire a bankruptcy lawyer. These cases can be long, sometimes more than a year, and require a lot of time and energy to collect proper facts and paperwork. A seasoned attorney can help you get through the complex process.