Bankruptcy is often considered a failure instead of what it is – an opportunity to start over. This is because there is life after bankruptcy. However, for some people deciding to declare bankruptcy can be extremely difficult and this can make things go from bad to worse. As such, here some information on what you can do when your only choice is bankruptcy.
Is Bankruptcy Right for You?
For those who don’t know bankruptcy is a legal procedure that can eliminate all or part of your debts. As such, you can’t just declare bankruptcy on your own. Though there is such a thing as a “poor man’s bankruptcy. This is when you wait roughly seven years for negative items to fall off your credit report.
But what if you don’t have seven years to wait? Assuming you can’t find a way to service your debts, then you might want to consider bankruptcy. Though you want to keep in mind that doing so might not get rid of all your debts.
This is true in the case of student loans and medical expenses. In the case of the latter, this is because some medical expenses can be long-term and as such, it is hard to determine when you will no longer need medical care.
Beyond this you might want to reach out to a credit counselor as well as a bankruptcy attorney talking to both will give you a better idea of your options. They can walk you through walk declaring bankrupt will mean for you.
This includes confirming your eligibility for the various types of bankruptcy, listing your assets, and your debts. Only by having these discussions can you confirm if bankruptcy is right for you.
There might be situations where it is not a good fit, while in other cases it might be your only option. The only way to know for sure if to talk to an experienced professional about the process and what it will mean for you.
Which Form of Bankruptcy Should You Choose?
There are two forms of bankruptcy that individuals can choose – Chapter 7 and Chapter 13. Note for businesses, there also the option of filing for Chapter 11 protection.
The difference between the bankruptcy options for individuals is asset liquidation. This is the sale of certain items you own, except for items you need to live, to help pay off your debts. While Chapter 13 does not include liquidation – assuming the debts agree to the terms of the bankruptcy.
Therefore, determining your assets is so important as creditors can, and in some cases do, lobby the court for liquidation, especially when a payment plan under Chapter 13 can not be agreed to.
This brings up another difference between Chapter 7 and Chapter 13 as the latter is a reorganization of your debt. Granted, creditors will also need to grant a “haircut” to you – this is when a creditor agrees to cut the amount owed by a debtor.
After these negotiations, an agreeable payment plan is put in place and you use the added time to repay your creditors as best as possible. Keep in mind this might not work for everyone and as such Chapter 7 is often seen as a much cleaner option.
One thing to mention about liquidation is that the courts take a dim view of people shifting their assets around just before declaring bankruptcy. You might even want to shift assets as much as three years before filing for Chapter 7. While this is an extreme case it does show how some people will try to protect certain assets in the bankruptcy.
If you have little or nothing to your name, there is almost no downside to declaring Chapter 7 as your debts will be wiped away and will give you the chance to start over again.
If you are still not convinced whether you should file for bankruptcy, then you might want to ask yourself a few simple questions. First, are you able to live seven years with a wrecked credit score as that is what it will take before the delinquencies are wiped off your credit report?
Second, have you talked to a credit counselor and are you in a position to live up to a payment plan? Keep in mind that most Americans lack the financial resources to pay for an unexpected expense as such keeping to a payment plan for a year or two when you are under financial stress might not be realistic.
Third, have you talked to a bankruptcy attorney as they are the ones best positioned to walk you through your situation and discuss the costs and the potential outcomes of filing for bankruptcy?
If you get through these three steps and bankruptcy is the only choice, then what you want to do is take this opportunity to start over again. Work with a lawyer and get the courts to grant you a reprieve – this way you can move on with your life.
About The Author
Albert Cooper is a known content writer from California, USA. He writes content in different niches such as social media marketing, finance, business, etc. He is a daytime blogger and night time reader currently working as a chief content advisor for some business and finance groups. He enjoys pie, as should all right-thinking people. Follow Albert on Facebook and Twitter.