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When you file for bankruptcy, you will go through a formal court process in just a few weeks. This process confirms that you have been facing difficulties in repaying various loans and financial obligations. It’s important to note that there are approximately 1.5 million people in the US who declare bankruptcy every year, which means it affects around 1 in 55 households.
While being ‘declared bankrupt’ can have a significant impact on your credit score, it also provides immediate relief from court orders, bailiffs, or individuals pursuing you for money.
Explore Your Options When Filing for Bankruptcy
There are several options available to you when considering bankruptcy:
- Chapter 7: In this type of bankruptcy, your possessions such as your car, clothes, household items, tools, belongings, jewelry, pension, or even your home may be sold to help settle your debts. The court will oversee the process of liquidating your assets.
- Chapter 11: This option is specifically designed for businesses looking to declare bankruptcy.
- Chapter 13: By choosing this plan, approved by the court, you will have the opportunity to repay your debts over a period of 3-5 years. The positive aspect is that you can retain ownership of your car, home, and any other assets you possess.
If you have any questions or need further guidance, don’t hesitate to reach out. We’re here to assist you!
Bankruptcy is a legal status granted by the court to acknowledge financial difficulties and the inability to repay debts at the moment. It requires approval from a bankruptcy judge and participation in a financial education course.
Bankruptcy offers several options, such as debt write-off, debt postponement, or a formal process of selling your assets to pay back creditors.
There are various reasons why someone may face bankruptcy, including accumulating debt from shopping, credit cards, payday loans, car loans, mortgages, and unexpected healthcare expenses without insurance or income.
If you are considering bankruptcy, it is advisable to seek the guidance of a lawyer or counselor, whose services may be either free or paid for. You can find assistance from government-approved credit counseling agencies.
What Are The Benefits of Bankruptcy?
Relieve the pressure from creditors – If you are dealing with bailiffs showing up at your home, constant letters about late payments, and struggling to manage your debts, declaring bankruptcy can provide some relief. Once you become bankrupt, creditors will back off, although you may still need to find a way to repay them.
A path towards debt-free living – By going through this process, you will work with professionals in the court and counselors who can help you eventually become debt-free. It may involve selling some possessions you hold dear, but it brings you one step closer to financial freedom.
A chance to start anew – For individuals burdened by debt, bankruptcy can offer an opportunity to eventually start fresh, even if it takes a few years to fully recover. In fact, it’s not uncommon for businesses to shut down and declare bankruptcy, only to successfully rebuild and thrive in the future.
What Are The Disadvantages of Bankruptcy?
Impact on your credit score – Bankruptcy has a significant negative impact on your credit score. With Chapter 7, it stays on record for 10 years, while Chapter 13 remains for 7 years. Your credit score is crucial for obtaining credit products like credit cards, loans, and even renting an apartment or getting a cell phone.
Difficulty accessing credit in the future – Having bankruptcy on your credit file can make it challenging to borrow money or purchase a house or car. It takes a long time to rebuild your credit, and you may need to explore alternative ways to pay for things, like buying a car in cash or using high-interest bad credit loans.
Potential loss of assets – Opting for Chapter 7 bankruptcy may result in losing important assets, including your home, car, and household items (not heirlooms, but appliances, TVs, etc.), as enforced by the court. If you have money built up in your pension, some of it may be at risk. Financially, you may feel like you’re starting over.
How to File for Bankruptcy
To file for bankruptcy, follow these steps:
Step 1: Complete a credit counseling session and obtain a certificate to file with your bankruptcy petition.
Step 2: The counselor will carefully assess your situation, provide advice on managing your debt, and present alternatives to consider. This counseling service may be free or may involve a fee.
Step 3: Fill out a means test form that includes details about your income, debts, and assets. Please note that there is a filing fee required.
Step 4: A bankruptcy trustee will be assigned to your case and will schedule a meeting, known as a 341 meeting, with your creditors. During this meeting, they will discuss any potential repayment options and address any questions or concerns.
Step 5: A judge will review your case and make a decision.
Step 6: Complete a debtor education course.
Step 7: If the judge rules in your favor, your debts will be discharged.
Can I Keep My Car if I Declare Bankruptcy?
Absolutely! Depending on the bankruptcy chapter you choose, there are options available to help you keep your car. It is important to note that you may need to find other ways to repay your debts, such as selling valuable possessions or a portion of your house. But don’t worry, if keeping your car is a priority for you, it is possible to hold onto it.
However, it is crucial to consider the severity of your debts. If they are particularly bad, you may not have a choice but to give up your car. Additionally, if your car is behind on repayments, it might be repossessed to cover those payments. The outcome may also be influenced by whether you fully own your car or not.
Looking for Alternatives to Bankruptcy?
Communicating with your debtors and crafting a plan: Avoiding your debtors won’t help you address your debt effectively. By engaging in conversation and cooperation, they may offer forbearance, showing leniency towards your situation. They might also present arrangements or repayment plans to assist you in becoming debt-free. Take the time to carefully discuss your options with each creditor and together, you can create a plan to settle your debts without resorting to bankruptcy.
Considering a debt consolidation loan: This type of loan, typically secured against your home, allows you to combine all your debts into one larger loan which can be repaid over a period of 1 to 25 years. This means you can clear all your debts at once! No more worrying about letters or potential court dates. Just make sure to make timely payments on the debt consolidation loan and avoid accumulating additional debts that could make it difficult to keep up.
Exploring various debt repayment strategies: There are creative ways to pay off your debts. You can sell unnecessary household items through a garage sale, seek financial assistance from family and friends, downsize your car or home, or even take on an additional job or two temporarily. By exploring these options, you can save yourself from a lot of hassle!