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Bankruptcy is a legal proceeding designed to help individuals or businesses who can’t repay their debts. Although it can give financial relief to many, bankruptcy comes with long-term financial and legal consequences and, unless sealed, becomes public record.
There are a few different types of bankruptcy that can be filed in the United States, but most individual filers will choose between Chapter 7 or Chapter 13.
After losing a significant amount of money, Martha and Jerry considered bankruptcy but wanted another option. Accredited Debt Relief provided them with the financial relief they needed, giving them a renewed sense of faith and the ability to move on with their lives.
Chapter 7 involves liquidation and discharging all qualifying debts so that the debtor no longer has to make payments. In order to qualify, the debtor’s income must be below a certain level. If the household income is less than the median income for the state and the debtor cannot afford to pay a minimum monthly payment, you may qualify for Chapter 7 bankruptcy.
Commencement of bankruptcy creates an “estate,” which becomes the temporary legal owner of all your property. The trustee, who is appointed by the bankruptcy court, administers the estate and gathers and sells your nonexempt assets. The trustee then uses the sale proceeds to pay creditors. The court will ultimately decide which assets are exempt.
At the end of the bankruptcy process, the court might discharge unsecured debts like credit cards, medical bills, personal loans, car accident judgments, some tax debts, and garnishments. Non-dischargeable debts generally include child support, most student loans, and most tax debts.
The ultimate goal of this process is to give the filer a fresh financial start through a form of debt cancellation called a discharge while providing a fair outcome to their creditors.
Chapter 13 aims to reorganize your debts. The court will require you to make a monthly payment as part of a strict 3 to 5-year payment plan. If you make all your payments, your unsecured debts might be discharged.
Although bankruptcy can provide relief to many, it may not be the best option for everyone experiencing financial hardship. It is highly recommended that you speak with an attorney before proceeding with a bankruptcy filing.
An attorney can help you determine how much of your debt can be eliminated by bankruptcy and what your court fees and expenses may be. Many clients find that they will save more going with an alternative like debt consolidation.
Upsides
Debt Discharge: The biggest benefit of filing for bankruptcy is the potential to have your debts discharged. You are no longer obligated to pay back your creditors when your debts are discharged.
Protection of Important Assets: Filing for bankruptcy might protect the home and main vehicle, which could make it possible to continue living in the home and commuting to work.
No More Collection Calls: Debt collectors are not allowed to continue collection activities while the bankruptcy case is pending in court.
Downsides
Negative Impact on Credit: Bankruptcy filings can stay on your credit report for up to 10 years. This may cause problems if you intend to apply for credit in the future.
Not All Debts are Covered: Most student loans, alimony, child support, and fines or fees owed to the government are not eligible to be discharged.
Other Consequences: Taking on new credit during bankruptcy can be difficult. With Chapter 7 bankruptcy, you may apply for credit as soon as the debt is discharged. With Chapter 13 bankruptcy, you must have prior approval from the court or the Chapter 13 trustee. Also, your payments must be current at the time of the request.
If you’re facing an exorbitant amount of debt, bankruptcy is simply one of many options to consider. Before filing, research these alternatives:
Debt Management Plans (DMPs) are a type of debt repayment system offered by credit counseling agencies. It’s important to note that DMPs are only one of many options that credit counselors may suggest, as they are also able to break down your credit report, help you create budgets, and provide loan counseling and financial education resources.
Debt Consolidation involves consolidating all your debts into one payment. Sometimes, debt consolidation solutions involve lowering your monthly payments.
Debt Consolidation Loans are a specific time of debt consolidation involving new lines of credit, like credit cards or personal loans, that are used to pay off existing debts. These allow you to move multiple debts to a single place, making it easier to focus on one monthly payment. Debt consolidation loans work well for consumers who have fair or good credit. They can also save you money if you’re able to secure a consolidation loan with a lower interest rate than what you’re currently paying.
Bankruptcy is a serious decision that might offer some people freedom from their debt but comes at a high cost. You can avoid bankruptcy altogether by taking on as little debt as possible and making all your debt payments on time. If you do find yourself in need of debt help, be sure to explore other options in addition to bankruptcy, such as debt consolidation loans, debt management, and other options.
Debt management programs, credit counseling, debt consolidation loans, and other options are all bankruptcy alternatives that can help you get out of debt more efficiently and potentially for less money. A Consolidation Specialist can examine your finances and suggest bankruptcy alternatives that may fit your unique needs.
Filing for bankruptcy can damage your creditworthiness and may prevent you from taking on new credit in the future. Bankruptcy filings could stay on your credit report for up to 10 years. Make sure you consider alternative debt options before committing to bankruptcy.
Accredited Debt Relief has helped people across the country consolidate and overcome their debts. With an A+ BBB rating, we offer customized financial solutions that can help you get out of debt. To learn more and receive a free, no-obligation consultation, contact us today.
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