(Newswire.net — October 8, 2016) — Going for bankruptcy can be a hard decision. There is a lot going against you if you decide to file. It will do a number on your credit score and will severely limit future borrowing abilities. Bankruptcy will eventually be wiped from your credit score after 7-10 years, but the majority of loan applications will ask if you ever filed. It’s always a much better route to pay off your debts rather than to file.
Major Considerations
A bankruptcy can affect your life negatively in many ways. People who are thinking of filing need to consider all of the options. Most of the time creditors would rather see you settle the debt than to have it put away through bankruptcy. Negotiating a settlement could be a better step, meaning you’ll be late on some payments but can eventually settle.
Consider a credit counselor. If you have tried negotiating to no avail, then consumer credit counselors can pick up where you left off. They’ll be able to negotiate a lower interest rate on top of a reduced monthly payment. Under new bankruptcy laws you’ll have to get involved with credit counseling at least six months before filing. They’ve now been built into the system so that you reconsider filing.
Many times medical bills are the most prevalent cause of bankruptcy. Most of the time it’s because people can’t afford them. Bankruptcy is usually a good option to provide a clean wipe or another way is to get a couple year repayment plan.
Weighing the Options
You have to think about multiple facets when coming to a decision. For example do you have or own more assets that is less than the debt you have, because this can play a role in determining bankruptcy or not. If your assets are secured with a loan, meaning a house or car, bankruptcy can save those assets.
Foreclosure of a house and a multitude of debts can be horrible experiences to deal with. Bankruptcy often provides the one stop solution to all of this. There can be severe restrictions placed on someone who has filed bankruptcy. You’ll need to learn about the bankruptcy policies and filing process.
There are lawyers and law firms out there that assist in this process. If you decide to go through with the process, then check out a liquidation and bankruptcy lawyer from IRB Law.
Filing for Bankruptcy
If you’ve made the decision that bankruptcy is the only way to save yourself and your assets, then it’s time to get to work. While you may be facing a foreclosure or other financial problem, you’re now at the end of the road, the final decision. Bankruptcy can be lengthy process with a lot of documentation.
While first filing, you’ll need to explain how you get into your current situation. A bankruptcy court will ask you to file every single asset you have with associated outstanding debts.
Assets are then divided into two different categories. These two asset classes are exempt assets, and non-exempt assets. Exempt assets cannot be used to pay off your debts and this includes equity in your home, automobile and any personal items. Home property other than your main house, recreational vehicles and other similar items are non-exempt and can be taken.
Varying Bankruptcies
There are three different classes of bankruptcy. One of the first ones is called Chapter 7. Individuals with few or no assets will claim Chapter 7. They’ll be able to get rid of unsecured debts like credit cards and medical bills. Any high valuation items such as coins or collections and secondary residences must also be liquidated. If an individual has no valuable assets and exempt property, they will not have to repay any part of their unsecured debt.
Chapter 11 Bankruptcy is the ability to reorganize and then become profitable again as a business or individual. This allows for a company to create new plans to make more profits again, cutting costs and increasing revenues. Under this plan they will work on a debt repayment plan. It is rare, but individuals may also file for Chapter 11.
The last type of bankruptcy is Chapter 13. This is for people who make too much money to file for Chapter 7. A chapter such as this allows a workable plan in exchange for paying their creditors back. All of these forms of bankruptcy should be the last option, but should be done with care and planning.
Zoe Sheppard is an accountant turned personal finance consultant. With a wealth of knowledge at her fingertips she enjoys sharing some of that online through her articles.