Bankruptcy is one of the leading debt-relief strategies. It is a legal process that helps people who cannot pay their debts. It allows one to get rid of all the debts and prevent themselves from getting into legal trouble.
The moment you file bankruptcy, you spare yourself from the torcher of creditors, constantly calling and asking for repayment.
But there is another side of the picture too. While this debt-relief option solves most of your problems, you can expect one or two issues to linger. Hence, you must understand every aspect of bankruptcy before declaring it.
Listed below are a few things you should know about bankruptcy.
- Bankruptcy is of two types
There are two common types of bankruptcy- Chapter 7 and Chapter 13. Chapter 7 bankruptcy or liquidation, as it is commonly known, is easy to file. It liberates you from unsecured debts like medical bills, credit cards, etc. Under it, you are not obliged to repay these loans. However, you might have to do away with some of your properties. It is a good option if you are a low-wage earner.
If you are a high-wage earner and have enough money to pay your debts through a suitable repayment plan, you can file for bankruptcy under Chapter 13. Under it, you will be obliged to pay the value of your non-exempt properties, like an automobile.
So, before you file for bankruptcy, reach out to a bankruptcy advisory service to understand the type of bankruptcy that best suits your situation.
- You won’t get rid of all your debts
If you expect to come out clean after filing for bankruptcy, you are mistaken. While you might be able to shrug off certain debts, like child support and taxes, student loan, etc., are exclusive of this arrangement. Plus, if you have a secured loan backed by collateral property, the creditor can take the property.
- You can keep a part of your property
This mode of debt forgiveness allows you to retain some of your properties. You can keep some amount of your exempt property but nothing of your non-exempt property. Your bankruptcy trustee can sell the non-exempt property to pay off your creditors.
It depends on the type of bankruptcy you file for. Under Chapter 7 bankruptcy, you lose your non-exempt properties to pay your debts. Under Chapter 13 bankruptcy, you can keep your property but create a repayment plan to repay the creditors the value of your non-exempt property.
- It is a complicated and expensive process
Although it relieves you of all your debts, filing for bankruptcy is tough. It entails lots of forms and schedules, and if something goes wrong (for instance, you fill the form incorrectly), you can get your case dismissed.
You can’t take this route without the help of an experienced attorney, but they charge a hefty fee. Additionally, it is a long process.
- It sticks with you
Bankruptcy can help you get rid of your debts but cannot erase your past. It will be a part of your credit report for at least ten years. Hence, it can affect your credit, making it difficult for you to take a loan in the future.
More often than not, when a debt-ridden person finds no way out, they tend to magnetize towards bankruptcy. Although this debt relief option liberates one of all the dues hovering over their head, the process entails complications and limitations.
So, if you are also considering declaring bankruptcy, ensure you understand all the above-listed points well and then take a suitable step.