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3 signs you need to consider bankruptcy

Thousands of people file for bankruptcy every year. Many of these stories fly under the radar because news outlets tend to only focus on companies filing for bankruptcy. One recent local example includes a Louisiana company that owns multiple nursing homes that had to file for bankruptcy. 

No one enjoys thinking about the possibility of filing for bankruptcy. However, it is vital to remain grounded in reality. In some circumstances, it may be the only way to get out of debt, but it is not right for everyone. Here are three signs you need to start thinking about bankruptcy. 

Questions to ask your mortgage lender if you can’t pay

It's never easy to admit, but if you can no longer make your mortgage payments, you need to be honest with yourself. Doing so increases the likelihood of saving your home and leaving yourself in a better financial position later.

The first thing you should do is assess your situation, paying close attention to how far behind you've fallen on your payments. From there, contact your mortgage lender to ask these questions:

  • Can you explain the payments I've missed and where this leaves me? Even if you know how much you owe, you may have overlooked fees like interest and penalties. Speak to your lender to ensure that you know exactly what you are up against.
  • Is there anything I can do to remain in my home? Your mortgage lender can discuss things such as loan modifications, forbearance and refinancing your loan. You may not qualify for all these, but it's critical to at least discuss them.
  • What do I need to know about selling my home? You don't need your mortgage lender's permission to sell, but it's never a bad idea to ask if there's anything you need to know. For example, if you find that you owe more than your home is worth, you might want to discuss the possibility of a short sale with your lender.

Life during and after Chapter 13 bankruptcy

There may come a time when you stand back and realize your debt is more than you can handle. You may have made some bad choices when during the holidays or you may have lived off credit cards between employment.Regardless of how the debt happened, you must now face the fact that bankruptcy is a viable option. What does life look like during and after you file?

These bankruptcy myths can slow you down

Even though you don't dream of the day when you finally file for bankruptcy, it may be the best way to regain control of your finances. As you learn more about the process, you can decide if now is the best time to take action.

Many people are interested in bankruptcy but neglect to push forward because they've yet to separate fact from fiction. Here are a handful of bankruptcy myths that could slow you down:

  • Assuming you'll lose everything: Just because you file for bankruptcy doesn't mean you'll lose your home, cars and any other possessions you've gathered. With the help of exemptions, you can hold onto many or all of your assets.
  • You can eliminate all your debt: Even though bankruptcy allows you to reduce or eliminate some debts, this doesn't hold true for all of them. For example, bankruptcy has no impact on student loans or child support.
  • Your financial future is over if you file for bankruptcy: A bankruptcy filing will remain on your credit report for a minimum of seven years, but you can take steps to restore your credit as time goes by.

Will these tips change the way you use your credit card?

There are many benefits of using a credit card, including the ability to better organize your finances and make large purchases with confidence. Just the same, if you overdo it, you could find yourself in financial trouble.

Here are a few tips that can change the way you use your credit card:

  • Pay off your balance: Rather than carry a balance, pay it off when your statement comes due. This allows you to avoid finance charges, saving you a lot of money.
  • Don't miss a payment: Not only does this result in a finance charge, but you can expect a late fee as well. Furthermore, depending on how late you are, it could lead to a red mark on your credit report.
  • Buy things you need, not things you want: Many people make the mistake of using a credit card to purchase things they really can't afford. Avoid doing so by asking if it's a want or need before purchasing.
  • Watch your total credit limit: As a general rule of thumb, strive to keep your credit utilization ratio below 25 percent. For example, if you have a $10,000 credit limit, don't let your balance exceed $2,500.

Answer these questions before filing for bankruptcy

If you're facing financial trouble, it's important to consider all your options for seeking relief. Bankruptcy may not be the first thing you think about, but it could be the best way to improve your finances and provide a fresh start in the future.

Here are some key questions to answer before filing for bankruptcy:

  • Which type of bankruptcy is best? Chapter 7 and Chapter 13 are your two options as an individual consumer. List out the pros and cons of both types to decide which one suits you best.
  • Do you qualify for bankruptcy? Not everyone can file for bankruptcy. For example, with Chapter 7 bankruptcy, you need to pass a means test to prove that you're unable to pay your debts.
  • Are you okay with the long-term impact? Even though there are many benefits of bankruptcy, it will remain on your credit report for as long as 10 years.
  • Is it the best solution right now? Bankruptcy is one of the best ways to eliminate debt and reorganize your finances, but it's not the only option. Don't go down this path until you're sure that it'll land you in a better place.

Can you keep your home when you file for bankruptcy?

Filing for bankruptcy is a serious decision that warrants careful consideration, but if you count yourself among the many Americans who feel like they are drowning in debt, doing so may give you the fresh financial start you desire. If you are thinking about filing for bankruptcy and are also a Louisiana homeowner, you may have questions about what could potentially happen to your property once you decide to file.

Ultimately, whether you should be able to keep your home after filing for bankruptcy will depend on certain factors, among them the type of personal bankruptcy you pursue. Chapter 7 bankruptcies, which are the most common form of bankruptcy, have certain income limits, and are therefore common among those who do not have enough money to pay off their debts. Chapter 13 bankruptcies, meanwhile, give those who have the ability to pay back at least some of what they owe a chance to get their financial affairs in a more manageable state. Each option differs in terms of whether you might be able to keep your home.

What happens during the foreclosure process?

In simple terms, foreclosure comes about when you miss several mortgage payments and give your lender the impression that you have no plans of getting back on track. Digging deeper shows that there is actually more to the process.

Here's what happens in foreclosure:

  • Fall behind on mortgage payments: For some reason, you're unable to make your mortgage payments, causing concern on behalf of the lender.
  • The lender sends a notice: You won't receive a foreclosure notice right away. Instead, your lender will let you know you have missed a payment (or payments) and need to take action.
  • You search for a solution: Your lender wants to work something out, so don't assume it's best to hide. Contact them to see if there is a way to avoid foreclosure, such as through forbearance.
  • The lender starts the foreclosure process: If you don't take action, your lender is given no choice but to start the foreclosure filing, inching closer toward repossessing your home.

Bankruptcy may be a hard choice, but it could be the right one

Bankruptcy is not for the faint of heart. It is arguably one of the hardest decisions anyone wallowing in debt will make. Choosing to file for Chapter 13 or 7 bankruptcy does not necessarily mean you are financially irresponsible. Many people fall on hard financial times due to health and medical issues, loss of jobs, pay cuts and more. 

If you are having a hard time getting your creditors to see reason about your circumstances, you may find yourself contemplating which chapter of bankruptcy is for you. Before you choose Chapter 7 over 13, keep in mind the following pointers to improve your situation. 

Avoid putting these things on your credit card

There are times when using a credit card makes sense, such as if you're making a big purchase for your home (like a set of appliances). There are also times when using your credit card can cause more harm than good. It's up to you to understand the difference.

Here are five things you should avoid putting on your credit card in the future:

  • Mortgage payments: Even if your lender allows this, it's a mistake because you're not really making a payment but instead moving your debt around.
  • Household bills: From your gas to your cable, from your electric to your water, don't get into the habit of paying household bills with your credit card.
  • Daily purchases: This includes things such as trips to the grocery store, cups of coffee and vending machine treats.
  • College tuition: You're better off securing a student loan, as these typically have a lower rate than a credit card.
  • Medical bills: If you have a medical debt you can't afford, discuss your options with your provider. You may be able to negotiate a lower price. You may also qualify for a payment plan. Both things are better than using your credit card.

McBride Law Firm

McBride Law Firm
301 Jackson Street Suite 101
Alexandria, LA 71301

Phone: 318-625-0471
Fax: 318-445-8066
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