It seems finances are tight for everyone these days. Strict budgeting, side jobs, and federal government assistance are widely used to alleviate financial strain. For most this is enough, but for others, a drastic measure like bankruptcy is needed to resolve a sticky situation.
Bankruptcy is a viable solution for many but is often riddled with myths and misinformation. So, should you file for bankruptcy? We’ve explained the basics so you can decide.
There are plenty of bankruptcy myths that keep people from considering bankruptcy as a solution. Will I lose all of my belongings? Will my credit score be ruined forever? These are all valid concerns and thorough research before filing for bankruptcy is needed to determine whether or not you should file for bankruptcy.
There are two types of bankruptcy that individuals can apply for – Chapter 7 and Chapter 13 bankruptcy. Each bankruptcy takes into account personal debts and income and will have different effects on your credit.
Chapter 7, known as liquidation, will force you to sell some non-exempt property in order to pay creditors. Because of the short duration of such bankruptcy cases, you should be able to begin rebuilding your credit in just a matter of months. Chapter 7 bankruptcies can stay on your credit report for as long as 10 years.
Chapter 13, known as reorganization, will let you keep the non-exempt property and pay its value over a period of three to five years. Even more, you can steadily build credit with each on-time payment while the case is still pending. This type of bankruptcy will appear on your credit report for 7 years.
Should you file for bankruptcy?
Filing for bankruptcy is a big decision. It can resolve outstanding unpaid debts, and appease creditors; however, depending on your financial situation, the repercussions may not be worth the filing.
Bankruptcy will put an immediate stop to the following proceedings, here are factors that people consider when filing for bankruptcy:
- Utility Shut-off
- Wage Garnishment
These are only a few factors that people consider when deciding to file for bankruptcy. Despite this, it is ultimately, up to you and your financial circumstances.
Why you shouldn’t file for bankruptcy?
Bankruptcy can render positive results for many people, but for others, it may not be worth the risk. Here are examples of situations in which you shouldn’t file for bankruptcy:
- If you have not missed any payments, filing for bankruptcy is a bad idea. Bankruptcy can set you back significantly when it comes to your credit score. However, if you have missed payments on multiple lines of debt, then you won’t notice a big impact on your credit. Bankruptcy can make the path to fixing your credit much shorter.
- It can hurt your chances if you wish to work around money or get a security clearance. Administrators of financial institutions and high-security jobs view financial troubles as a vulnerability. They worry that someone with a history of financial issues will take risks that others wouldn’t.
- If a secured creditor has a lien on a house or a car, the property will revert back to them if a bankruptcy is filed.
Bankruptcy can be a scary subject with a lot of unknowns, but it is a legal right and is considered a positive second chance for many people. Before taking the plunge talk to a bankruptcy attorney to find out if bankruptcy is the appropriate action for you.