If you find yourself buckling under heavy loads of debt, you may want to think about bankruptcy as one of your options of solving it. A lot of financial experts will tell you to make this as your last option. The repercussions of bankruptcy on your credit history is just too monumental to ignore.
Your credit score will go down 200 points and your filing will be placed in public records. For the next 10 years, your credit report will show that you have filed for this. Every time anyone looks at that report, they will know that you have once been financially incapable of paying your dues. That will not bode well for future lenders, potential business partners, prospect employers and even landlords.
However, there are instances wherein this option is the only way out. Some people make the mistake of trying to consolidate or settle their debts when in reality, their finances just cannot afford it. There are situations wherein the consumer’s money is not even enough to afford the debt reduction the debt settlement can give. If that is the case, you may just have to face and accept that bankruptcy is your only way out.
Signs bankruptcy is the only debt relief option left
As scary as the situation may seem, there are people who have emerged victorious from bankruptcy. But at the same time, there are those who were left in a worse shape after. You want to the be like the former so make sure you have the following signs to prove that you do need to file your petition for bankruptcy.
You have an income but it is barely enough to pay for your basic needs, much alone your debts.
You’ve been using your credit cards to pay for basic needs and you have no idea how to pay it back.
You have been late on most, if not all of your credit payments.
You are buried under medical debt and you are still incurring more.
You do not think that your situation will improve in the next year or so.
If one or more of these describe your current financial situation, you may want to think about your bankruptcy options. A good way to confirm your decision is to get credit counseling. The credit counselor will take a look at your finances: from your income to your expenses to your credit obligations. They will tell you if you have other options aside from bankruptcy or if it is your only way out. This is a requirement anyway for anyone who wants to file. The judicial court dictates that you have to get credit counseling 6 months before filing. You will be required to submit a certificate from one of their accredited agencies on their list. You can get this list from the website of the US Department of Justice.
Know your bankruptcy options
There are two bankruptcy options that consumers can file. You will not be allowed to choose because it is the bankruptcy court who will decide for you. This will be done through a means test. This test will determine if you can file a Chapter 7 or Chapter 13.
Chapter 7. This bankruptcy option will get you out of debt very quickly – usually in a couple of months. This is for those who are really in severe financial crisis. However, it will take most of your possessions from you. All the assets of the consumer that can be liquidated will be sold and the profits will be distributed to the different creditors. Although, there are lists of exemptions in bankruptcy that indicates what cannot be liquidated. For instance, your 401(k) will not be taken from you during the liquidation process. Anything that is not paid through your liquidated assets will be discharged by the court.
Chapter 13. This is usually for people who file and have an income that is above the average median salary of the State. This option will subject the consumer under a repayment plan that the court will issue. You have to complete the payments on this plan and that could take a couple of years to complete – usually 3-5 years. Anything that is beyond this repayment plan will be discharged – but only after the consumer complete the payments. The great thing about this is none of your assets will be liquidated.
Important information when filing for bankruptcy
Most bankruptcy filers perform their own means test to determine if they will fall under Chapter 7 or Chapter 13. If they fall under the latter, some of them opt for debt settlement instead. Of course, the difference is they have to wait for the creditor to decide if they want to accept the settlement while in bankruptcy, the court will decide. There is nothing that the creditor can do about it once the judge makes a decision.
You should also consider the costs that bankruptcy will get you to pay. You have the lawyer fees and also the administrative costs of filing. In some cases, the costs will rise between $1,500 to $3,000. You can oversee your own bankruptcy proceeding but you could end up wasting your money if you make a mistake withe documents.
After bankruptcy, your credit score will be in a very bad shape but you need not lose hope. In some cases, the fast relief will give you a clean slate to work with. The great thing about this option is your creditors will no longer be able to come after you for the discharged debt. That can really help you put your debts behind you so you can start managing your finances correctly from now on.