Knowing When Declaring Bankruptcy is the Best Option

Chances are pretty good that you know at least one person who has declared bankruptcy. More than ever before, individuals, married couples, large corporations, schools and even entire cities have filed bankruptcy since the Great Recession started. If you are struggling financially and starting to wonder if declaring bankruptcy is the best option for you, take a moment to understand what that really means.
Bankruptcy 101: The Basics
Bankruptcy. The word itself leaves a bad taste in the mouth of many, but it is simply a legal process that was designed to help consumers and businesses eliminate the debts that they can no longer afford to pay or that provides them with the ability to repay their debts under bankruptcy court protection.
There are six chapters, or types, of bankruptcy under U.S. law. Two major types apply to consumers while the others apply to businesses:
Chapter 7 bankruptcy, which can quickly free eligible consumers of unsecured debt, is often the best option for people who meet the following criteria:
  • Have a lot of credit card debt and/or medical debt,
  • Do not own a home or other property, and
  • Do not have sufficient income to repay their debt (a means test is required to prove lack of income).
Knowing When Declaring Bankruptcy is the Best Option

Chapter 13 bankruptcy, which can help eligible consumers who are struggling to repay debt make one affordable monthly payment, is often the best option for people who meet the following criteria:
  • Are behind on their mortgage payments and do not want to lose their home to foreclosure,
  • Have a reliable source of income that will allow monthly payments to the court for the next three to five years,
  • Have a lot of credit card and or/medical debt, and
  • Have other secured and unsecured debt that they are struggling to repay.
Bankruptcy Pros and Cons
You will want to meet with a bankruptcy attorney who can analyze your unique situation and offer professional legal advice, but the following pros and cons of bankruptcy may help you to reach your decision:
Knowing When Declaring Bankruptcy is the Best Option
  • You will have to give up your credit cards and make all purchases with cash, but those credit cards are most likely what got you into financial trouble in the first place.
  • A recent bankruptcy on your credit report will cause your credit score to drop dramatically and make it very difficult to secure a mortgage or purchase a car for several years, but filing for bankruptcy sooner rather than later may help you save your current home from foreclosure. Consumers are also able to keep a vehicle and other essentials in most cases.
  • Certain debts, such as student loan debt, cannot be discharged in bankruptcy and will still have to be repaid. However, filing for bankruptcy will provide you with some protection from bill collectors and will include a payment plan can to make paying those debts more affordable.
  • Filing for bankruptcy can be socially embarrassing, but so can having your vehicles repossessed and losing your home.
It is a tough decision to make, but if you are constantly struggling with unpaid bills, in danger of losing your home and your car, and it seems as if your ever-growing debt will most likely never be repaid, it may be time to declare bankruptcy.
You can only juggle balances from one credit card to another or borrow from relatives for so long. The law can be confusing, which is why it is in your best interest to seek professional legal advice from a bankruptcy attorney in your area.

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