Your mind is usually engulfed in the debt you have when you carry a vast amount of debt around. You probably are always thinking of how you can get out of it. When you are thinking of bankruptcy, you need to consider a few things.
When you know some of the crucial ideas about bankruptcy, you won’t make any mistakes. You won’t file when you don’t have to, and you can file on time when you have to. Here are some essential things to consider before you file for bankruptcy.
1. It Affects Your Credit
The first thing you need to know about filing for bankruptcy is that it will affect your credit negatively. The drop won’t be overtime; it will be significant and swift. This can remain in your credit record for the next ten years.
You will have to declare your bankruptcy in certain official documents; it will also be a public record. It would help if you were watchful before you file, as all that comes into play in your credit score. You are also required by future employers to know of your bankruptcy status.
With your credit that messed up, there will be things you will find hard doing.
3. Different Types of Bankruptcy
Another crucial aspect of bankruptcy is that there are different types of bankruptcy. There are three you can file for, but you need to focus on two. The three are Chapter 7, Chapter 11, and Chapter 13.
The two you need to focus on are Chapter 7 and Chapter 13 only – they are ideal for someone who has some income – average.
Chapter 7 is also known as liquidation, and it’s an excellent way to wipe out most of your debt. You will need to sell off non-exempt assets, though, to pay off your debtors. Like most people who file for this bankruptcy, you will be able to preserve most of your assets.
Chapter 13 is known as a reorganization in some instances and allows you to pay off your creditors over time. This is a longer bankruptcy to complete, as it can take up to five years. You will need to have a regular income to qualify for this bankruptcy.
3. Not All Debts Will be Wiped Out
Don’t expect that when you file for bankruptcy, all your debt will be wiped off. That isn’t the case; you will still have to meet certain obligations such as tax payments, student loans, and child support.
Also, you need to note that your creditors have the right to challenge your debt discharged in court. The court can rule in your debtors’ favor – when this happens; you will have to pay the debt. When you file for bankruptcy, it isn’t a quick financial fix.
4. It isn’t A Quick Fix
As stated, filing for bankruptcy isn’t a financial fix. Some disadvantages come with filing for bankruptcy – as much as the advantages. As seen above, filing for bankruptcy will affect your credit, and it may take time to fix that.
Another disadvantage you will have to face is losing some of your assets due to bankruptcy. You will need to consult a lawyer if you are to stand any chance of surviving bankruptcy. The lawyer will help you find out which type of bankruptcy is best for you.
5. Your Income Matters
If you have a stable source of income, you need to ensure it is maintained when and after you filed for bankruptcy. When you have a certain income, you will be eligible for Chapter 13 bankruptcy – where you will pay off the debt over time.
Generally, your income will play a huge role in deciding which type of bankruptcy you will be filing. Your debt will be restructured by how much money you earn. The more you make, the better off you will be in bankruptcy.
6. There are Other Ways
Filing for bankruptcy shouldn’t be the first thing you look at when you are neck-deep in debt. It would help if you looked at other avenues before you look at filing for bankruptcy. For example, you can meet your creditor and renegotiate your debt.
You can also opt to consolidate your debt if you have such an option. It would help if you looked at restructuring your finances overall before you file for bankruptcy. Ideally, bankruptcy should be the last option you look at when all has failed, as it comes with heavy burdens.
Before you file for bankruptcy, you need to ensure you know all there is to know about bankruptcy. Here are some of the crucial things you need to take a second look at before you file for bankruptcy.