People sometimes put off filing for bankruptcy far longer than they need to. They worry about the stigma and how bankruptcy will affect their future. Although you should not take the decision to file for bankruptcy lightly, there is no reason to wait to find out your options. Rest assured that thousands of Americans go through this process every year. If you are facing overwhelming debt and thinking about bankruptcy, you are not alone. There are a few things you should know before filing, however:
The filing process
In order to file for bankruptcy, you will need to tell the bankruptcy court about your current financial situation. You need to list all debt that you owe. If you don’t list it, the bankruptcy may not discharge (get rid of) that debt. The court will assign a trustee to oversee your case. Also, be aware that you should not take out new debt in the months leading up to your bankruptcy.
You can’t eliminate all debt
Although bankruptcy will help you eliminate or restructure most of your debt, certain types of debt cannot be discharged in bankruptcy, including taxes, child support and most student loans.
Chapter 7 vs. Chapter 13
The two main types of bankruptcy for individuals are Chapter 7 and Chapter 13. Chapter 7 wipes out most of your debts, giving you a fresh start. The downside is that your bankruptcy trustee may sell some of your property to pay your creditors. You must qualify for Chapter 7 through a “means test.”
Chapter 13 works best for people who have a regular income. You can protect more assets through Chapter 13 because you set up a repayment plan for your debts. This helps people who need to catch up on a mortgage or car payment, so they don’t lose their property. If you don’t qualify for Chapter 7, you may have to file Chapter 13.
Protecting your home or car
For some people, bankruptcy allows them to keep their home or car. Their other debts are reduced enough to afford the payments on these assets. You cannot protect all property in bankruptcy, however. Chapter 7 has little protection outside of basic personal items. Even with Chapter 13, certain assets may not be protected outside of an exempt amount.
How it affects your future credit
Many people worry about the effect bankruptcy has on their future, including their credit score. Although your bankruptcy will stay on your report somewhere from seven to 10 years, depending on the type of bankruptcy you file, you will start to rebuild your credit right away. Continuing to struggle with debt you cannot pay will only keep dragging your credit and finances down.
You do not have to face your debt alone. Bankruptcy exists to help people facing hard times so that they can build a brighter future for themselves and their families. If you are struggling with debt, bankruptcy may be the solution to get your life back on track.