Bankruptcy is when an individual or company cannot pay off their debt. The status is only given by a court. There are two main types of bankruptcy, Chapter 7 and Chapter 13. In a nutshell, Chapter 7 will wipe out all debt and give you a clean slate to start from and Chapter 13 will give you more time to pay. It may sound like an appealing option but you really have to consider your circumstances before filing bankruptcy. This is definitely not something that should be done on a whim. Careful thinking and accounting should be done and legal advice acquired first.
For the most part, filing for bankruptcy is recommended as a resort option. You have to have some serious bankruptcy issues to consider it. If someone is absolutely overwhelmed by the amount of debt that they have or maybe they don’t even know how much they owe exactly, bankruptcy might be a good option. However, all bankruptcy cases are for people who owe more then their combined assets. Although bankruptcy will wipe out all or at least most of a person’s debt, it comes a very serious consequences. These consequences can be more devastating to you than the bankruptcy itself. Let’s go over a few of those.
- If you are filing for Chapter 7 bankruptcy, it will take everything that you own. This includes homes, cars and businesses; basically everything that has value. These are taken and used to pay off your debts. Anything that remains will be wiped away but you will be left with literally nothing. Chapter 11 bankruptcy will allow you to keep certain assets but comes with its own set of disadvantages.
- Bankruptcy will stay on your credit report for seven to 10 years depending on what kind of bankruptcy file. Chapter 7 is on your report for 10 years and chapter 13 for seven. This can prevent you from rebuilding your credit, buying houses, generally using your money and even applying for some types of jobs. You need credit for almost everything so this can prevent you from returning to your old life in many ways.
- Your bankruptcy will become public record once you file. All your personal information will legally appear in places that anyone in the public has access to. This means family, friends and even potential employees can all see exactly what happened in your bankruptcy.
- Student loans are not covered under bankruptcy law. While credit cards and other unsecured debts may be taken, any student loans are there to stay unless you qualify for a loan forgiveness program. However, in a typical bankruptcy case you will still be liable for any student loans.
- The catch 22 with all bankruptcy cases is that while you are trying to relieve yourself of all debt and going broke in the process, a bankruptcy requires extensive legal representative, which costs a lot of money. Rates can vary depending on where you are but they cost at least a couple thousand dollars.
- If you have filed for a Chapter 13 and you miss payments, one of two things will happen:
- It be turned in to a chapter 7 bankruptcy which I’m sure you don’t want, since you didn’t file for that in the first place.
- The case could be dismissed entirely and you end up losing all protection and are still responsible for all of your debt.
Either way, it can be personally devastating to you.
You should really keep these things in mind when considering personal bankruptcy. It is definitely not something to be taken lightly given the possible consequences. If you decide that bankruptcy is your only option then you must do what is necessary to get yourself back on the right path but remember it may take close to a decade to get things back to square one. You will not even be at square one for that long.
If you think you may have a bankruptcy case, your first plan of action should be to contact a lawyer that can also offer mediation services for your bankruptcy case, should it be necessary.