Bankruptcy is a financial law system which allows people who are in financial struggles to discharge their debt and not have to pay it back. It essentially gives people the chance to make a fresh start and get their life back on track.
There are a few different types of bankruptcy you can file for, and today we are going to talk about the main two types available for debtors.
Chapter 7 bankruptcy is a form which liquidates your non-exempt assets in order to pay back the debt you owe to creditors. This can be extreme but it is the best option to take if you have a lot of debt from credit cards and little income available to be placed onto a payment plan.
Chapter 13 bankruptcy is a form of bankruptcy which is more suited to people who do have income, but have fallen into debt for some reason and just need to wipe the slate clean for the future. Rather than you having to hand over your assets, you will be put onto a payment plan which can last for five years and allow you to pay back the debt in manageable amounts.
Advantages of Filing Bankruptcy
The main advantage of filing for bankruptcy is the fact that you will no longer have to pay back to creditors, and they will be notified that you have been put on a stay. This means that they cannot try and collect money from you because the case is now being handled by your bankruptcy lawyer and the authorities. If you are successful in your bankruptcy case you will be cleared of all debts and this will means you never get contact from your creditors demanding money again.
Disadvantages of Filing Bankruptcy
Of course, this all seems too good to be true right now, doesn’t it? But as with any law or system, bankruptcy does have its flaws. Even if you do successfully file for bankruptcy on your debts, they very rarely discharge the debt you owe on mortgages, student loans or taxes. Because of this you can end up losing a lot of non-exempt property to help pay back the debt you owe. Even if your assets mean a lot to you, you could still stand to lose your car and other valuable property in your home.
Bankruptcy can of course be detrimental for your credit score. Once bankruptcy is filed it is required to be added onto your credit report and will stay there for 10 years, meaning your chances of gaining credit in the future will be a lot less likely.
When To File Bankruptcy
It can be difficult to know exactly the point where you need to file for bankruptcy. Generally, if you are cutting down on your spending or to manage to come up with a payment plan with creditors, you will not need to file for bankruptcy. However you will need to file for it if:
-you have been out of work for a long time and have no incomings
-you have missed bills or a pending lawsuit
-you have missed payments on credit and a chunk of debt
-you have a home nearing foreclosure