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Bankruptcy For Debt: Is It Really An Option For You?

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Disclaimer: If you’re looking at bankruptcy as an option to pay off your debt, the following information only works as general guidance as to the legal nature of filing for bankruptcy. It is not, however, equivalent to actual legal advice. To learn more about the legal aspect of bankruptcy for debt, it’s encouraged if you talk to a licensed lawyer who has experience in matters similar to yours.

Filing for bankruptcy seems to be the last financial resort in dealing with debt. However, some people prefer to understand the specifics of the process. Questions like “Does going bankrupt mean that you’re out of money to pay off your debts?” and “Can bankruptcy be the best option for you?” are asked to determine the necessity of declaring bankruptcy for debt. While it’s still best if you consult an experienced lawyer before deciding to file bankruptcy, below, we’ll see if bankruptcy is the right way to deal with your debts. 

Bankruptcy

How Does Bankruptcy Work?
  • Bankruptcy is considered as a legal status which designates you that you’re unable to pay off your debts anymore.

  • Remember that going bankrupt does not mean that you have to declare it by yourself. It requires the intervention of the court when you’re looking into bankruptcy for your debts. The court will be the one to declare your bankruptcy status, not you.

  • Take note that filing for bankruptcy means your inability to pay back all of your outstanding debts. In cases like these, the court will make a way to create a payment structure that will enable you to pay your creditors as much as possible.

  • If things turn out so badly for you, you can take advantage of some debt counseling to help you figure out if you can still afford to pay your debts on your own.

What Are The Forms of Bankruptcy?

If you’ve been thinking about going through bankruptcy, you can make use of Chapter 7 and Chapter 13 forms of bankruptcy as your guide in making tough financial decisions. However, the two are different from each other. Let’s see if these forms of bankruptcy can be a possible option for you.

Chapter 7 Bankruptcy: This form of bankruptcy is also known as liquidation of assets. In other words, you’ll have to give up your possessions to get rid of your outstanding debts.
  • Remember that once these assets are liquidated, the proceeds will go toward the payment of your unsecured debts.

  • Keep in mind also that Chapter 7 bankruptcy is for people who do not have an excessive amount of income and assets but have huge amount of debt.

Chapter 13 Bankruptcy: This form of bankruptcy is different from Chapter 7 bankruptcy. Unlike Chapter 7, Chapter 13 is all about the reorganization.
  • In simplest terms, Chapter 13 aims to pay off your debts as fast as possible and to help you recover from too many monetary obligations.

  • With Chapter 13, the court issues a “stay” execution to stop the collection and foreclosure of assets for a limited period. From there, the court will work with you on how you’re going to restructure your debts.

  • Take note that what’s important here is to make repayment manageable. However, if you have too many debts to pay, you may find it difficult to qualify for Chapter 13 bankruptcy.

What Debts Are Covered By Bankruptcy?

While bankruptcy is said to be one of the dominant tools to resolve debt, it does not, however, cover everything.
  • Remember that bankruptcy is beneficial for eliminating unsecured debts. These debts are those which you did not put down any collateral such as your credit card debts.

  • Take note also that bankruptcy can stop the possible harassment by creditors and other collection agencies. When you file for bankruptcy, you’re giving yourself peace of mind, and you’ll eventually put a pause on the harassment initiated by your creditors.

What Debts Are Not Covered By Bankruptcy?

While it’s true that bankruptcy can eliminate debts, the same does not guarantee the elimination of all types of debts.
  • Take note that even you file bankruptcy, the same does not apply to family debts including child support and student loans because these types of debts do not fall under the coverage of bankruptcy.

  • Remember that bankruptcy is used to pay off debts but it does not cover the liens. In other words, the creditors can still run after for the repossession of your property which it has a lien on. 

How To Know If Bankruptcy Is The Only Option For Your Debts?

If paying off your debts seems to be more difficult than ever, check if bankruptcy is the right option for your situation. You can ask some questions before you can decide whether to go for bankruptcy or not.
  • When dealing with the idea of going through a bankruptcy process, make sure to determine what kinds of debts you’re planning to eliminate.

  • If you’re expecting bankruptcy to help you with your debts, make sure that you get to understand what you’re about and willing to lose.

  • Remember to consider how your declaration of bankruptcy affects your personal life and the lives of those people around you.

If you think that bankruptcy applies to your current financial situation, filing for bankruptcy may be an option that is worth exploring. When you’re still struggling with your debts, simply take note of the relevant factors of your case and be sure to approach an experienced Chapter 7 bankruptcy attorney to help you with your problem.

About the writer: Gerald Stevens has dedicated much of his life to law, and his pieces as a writer for Dove Law Firm are imbued with his wisdom obtained from over 20 years of experience in business. Gerald enjoys hanging out with his grandchildren when he has the free time.