Bankruptcy has always had a dark cloud hanging over it as something to avoid.
That simply isn’t true. Filing for bankruptcy is freedom from crippling debt. Filing allows you to get the monkey off you back and start anew.
Maybe you made some poor financial decisions, fell on hard times, or fell victim to an injury or disorder that racked up medical bills that seems insurmountable. No matter your situation, bankruptcy is a way out. There is no need to dip into your 401(k) or savings to pay off mounting debt.
Below you’ll find some typical questions and answers to figure out which bankruptcy path (if any) is right for your situation.
What are some situations that can lead to massive debt and eventual bankruptcy?
- A divorce and thus a much lower income
- Physical or mental health problems
- Unemployment due to a myriad of possibilities
- Creditor harassment seeking unpaid debts
- The bank is threatening foreclosure to your home or property
Are there other options to consider before filing for bankruptcy?
Yes, there are other options. If you aren’t severely suffering financially, consider a debt management program, debt consolidation, or even debt settlement. Debt settlement is a negotiated agreement in which the lender agrees to settle your debt for a much lower amount. If the lender does decide to settle, your credit score will suffer for seven years.
If you have the financial means, a personal debt consolidation loan can be much less harmful to your financial health. Note that a law firm specialized in bankruptcy, foreclosure defense, and fighting against debt collection and garnishment can act as a useful guide as well.
Which personal bankruptcy filing is best for my situation?
Chapter 7 bankruptcy is designed for individuals that have no means to pay any of their debts. Otherwise known as “liquidation” bankruptcy, Chapter 7 acquires your property and assets (home, car, jewelry, etc.) to repay your debts.
Sometimes, an individual’s income is too high to qualify for Chapter 7. To qualify, your income must be less than the median income of your state for your selected family size.
Chapter 13 is more of a reorganization. To qualify for Chapter 13, you must have a steady income. Also, your unsecured debts (credit cards, medical bills, personal loans, etc.) cannot exceed $394,725, and your secured debts (home, vehicle, property) cannot exceed $1,184,200. A benefit of Chapter 13 bankruptcy is that a “protective stay” is enacted to prevent creditors and collection agencies from harassing you while you follow a directed repayment plan.
Which debts do not qualify for bankruptcy?
- Student loans
- Child support
- Income taxes
- Any debt to a government agency
- Any debt incurred by court-ordered fines or penalties
How much will my credit health suffer if I file for bankruptcy?
The rule of thumb seems to be the higher your score, the more points you’ll lose. Also, Chapter 7 bankruptcy will remain on your credit report for 10 years. Chapter 13 will stay on your report for seven years. This will significantly hinder your ability to secure a credit card or loan of any kind during the 7 to 10-year duration.