Debt is a common problem that millions of Americans face each day. Debt can be overwhelming, exhausting, and feel as if it never ends no matter how hard to you try to get above a negative balance. For nearly one million Americans, in 2015, bankruptcy seemed like the only escape, the only way to break free from debt. In the financial world, bankruptcy is viewed as the last resort and although it has helped millions get a fresh financial start, there are questions you should ask yourself before filing for bankruptcy.
Are You Ready for Future Financial Challenges?
All too often, people with a mountain of unfathomable debt file for bankruptcy without really thinking about some of the consequences. While it’s true that bankruptcy can save people from getting even deeper into financial trouble, by filing for bankruptcy you are publicly declaring that you cannot afford to pay for your past debt. Although this is nothing to be ashamed of, it will not automatically make your financial life easier. For instance, once you declare bankruptcy it may be difficult to take out a loan at a bank, get a credit card, or even worse, an apartment or job.
Your decision to file for bankruptcy stays on your credit report for 10 years and also goes on public record (which may or may not affect you). If you don’t think that you can face another decade of financial hardship and limitations, bankruptcy may not be for you.
Are You Exploring All Your Options?
Many people become so blinded by debt that they become unaware that there are other options to consider other than bankruptcy. It’s natural to be drawn to the “completely free from debt” option, but remember, there are consequences that don’t really make it an easy out. Before you go right for bankruptcy, make sure you’ve explored the following options, talking to creditors and working out a modified payment plan, contact credit counseling services, create a budget, or earn extra income to pay for debt. If you’ve tried everything and see no other option, bankruptcy may be your best option.
What’s the Difference Between Chapter 7 & Chapter 13?
If you’ve considered bankruptcy you have probably heard of Chapter 7 and Chapter 13, but don’t know what it means. Chapter 7 bankruptcy, according to Nicholas R. Westbrook, bankruptcy attorney at Westbrook Law, is also known as “liquidation bankruptcy” and is typically used to eliminate certain unsecured debts such as credit cards, medical bills, and personal loans.
Chapter 13 bankruptcy is a better option if you have steady income or assets you don’t want to lose, such as your home or vehicle. With Chapter 13, you set up a repayment plan (usually over the course of 3 to 5 years) and once you’ve made all payments, your debt is forgiven.
Can You Afford to File for Bankruptcy?
Even if you’re facing financial woes, filing for bankruptcy isn’t free. Filing fees can cost well over a couple hundred dollars and while you may be able to set up a payment plan, remember it’s an added cost that you may not have considered.
After Declaring Bankruptcy Will You Still Have Some Debt?
While bankruptcy eliminates a lot of debt related to credit card bills and other bills, you can’t do much about child support, alimony, student loans, a majority of tax debts, and secured debts such as car or home loans. If you’re still eager to file for bankruptcy, make sure you know what debt may be left over.
Author: Matt Rhoney