Bankruptcy is a popular option for debt relief. However, it is not the right choice for everyone. To help you determine whether or not bankruptcy can solve your problems, here are some points to consider:
Two Types of Bankruptcy
The first thing you need to know about bankruptcy is that there are two main types that you have access to: Chapter 7 and Chapter 13.
Chapter 7, also known as liquidation, involves the sale of your possessions to pay your debt back, which usually takes less than a year. On the other hand, Chapter 13 is a repayment plan where the court helps you pay back your creditors over several years.
Do You Have Assets Now?
In the case of Chapter 7 bankruptcy, your assets will be sold and the proceeds will be given to your creditors. If you don't actually have any assets or you only have the minimum amount you need to survive, then the court isn't going to order that you give up your livelihood. Therefore, if you have no assets, Chapter 7 is not a good choice for you.
Do You Have Steady Income?
In Chapter 13, you will repay your debt over a long period of time. If you do not actually make money during that period, then it will be impossible to make those payments. You will need to prove to the court that you have the means to make your payments, otherwise Chapter 13 is not going to work.
What If You Have Neither Assets Nor a Steady Income?
If you lack both of those things, then you can't really execute either form of bankruptcy. You are what is known as judgement proof, which means that your creditors can't currently get the money that you owe them. Be careful though, because your judgement proof status may end if you get a steady job or increase your assets substantially. At that point, your creditors may pursue you for your debts, which could ultimately force you to file a bankruptcy claim.
How is Credit Affected?
Bankruptcies will stay on your credit report for a long time, but they are actually removed after several years. Chapter 7 and 13 bankruptcies last around 10 years, but may be removed sooner than that. After they are removed, your credit should return to normal. However, bankruptcies might still show on your credit report if you request specific types of financial services, such as huge loans or large life insurance policies.
For more information about filing for bankruptcy, contact a firm such as Wiesner & Frackowiak, LC.
Share13 August 2015
Filing for bankruptcy has a tendency to make people feel ashamed and stressed out, and can turn into a big source of depression if not handled properly. As a counselor for couples and families, I have worked with various families throughout the years who have had to go through bankruptcy. And during this time, I have seen firsthand how, with the right mindset, going through bankruptcy can make people stronger in their financial lives and careers. I started this blog to provide information about the right things to do and the things that should be avoided while going through bankruptcy to minimize stress and maximize potential once the process is over. If you have any questions or concerns, hopefully they can be addressed on these pages.