You can get back on track financially by filing for bankruptcy.
If you’re having money trouble, there are a few things you should know about the process. You probably have a lot of questions, like when should you file for bankruptcy.
To begin with, you should understand the basics of bankruptcy. With a better understanding of the process, you can make a more informed decision about whether it’s right for you.
Keep reading for deeper insight.
Can I File for Bankruptcy?
Lawmakers created bankruptcy law to help people who have more debt than money. It’s a legal procedure for individuals and organizations that don’t believe their financial situation will change anytime soon.
Of all bankruptcies in 2019, there were over 750,000 filings. Consumers made most of those filings. Only a small percentage of businesses filed bankruptcy in that same year.
Among individuals who’ve filed for bankruptcy, consumers had financial obligations such as an auto loan, mortgage or student loan. In some cases, consumers held all three. Unfortunately, there was more bill than money at the end of each month for these individuals.
Many people have found themselves filing for bankruptcy after losing their income. Some people have lived beyond their means, while others have experienced a change in their family, such as the passing of a loved one who was the breadwinner. If you feel as though there’s no other alternative, it’s time to seek bankruptcy and debt help.
Types of Bankruptcies
Most people file Chapter 7 bankruptcy. Compared to other methods, you can complete the process in months rather than years. Fewer consumers have filed for Chapter 7 bankruptcy since the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act.
The second most prevalent filing is chapter 13. However, there are a few more types of bankruptcy filings. Here’s an overview.
Chapter 7 Bankruptcy
Chapter 7 is also called a liquidation or straight bankruptcy. With this filing, a court-appointed trustee will manage the liquidation of your assets. They’ll use the proceeds to pay your debtors.
This proceeding doesn’t include student loans or taxes. Some states will allow you to hold onto certain possessions, such as your house, car and retirement account.
Chapter 11 Bankruptcy
If you’re filing for a business or corporation, you’ll file Chapter 11 bankruptcy. In this filing, you’d have to show the courts how you’ll continue to pay your expenses as well as your debts.
Both the court and the creditors must approve Chapter 11 bankruptcy. Typically, this filing is for high net worth individuals.
Chapter 12 Bankruptcy
If you are a farmer or fisherman, you’ll file chapter 12 bankruptcy to prevent the repossession of your assets or foreclosure of your property. This filing is similar to chapter 13 bankruptcy. However, it’s more flexible and has a more substantial debt limit.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy involves a reorganization of debts. If you choose this filing, you’ll have to comply with a court-approved payment plan to settle some or all of your debt over three to five years.
The court will determine payments according to your income. You’ll also have to conform to a budget. Still, it will allow you to hold onto your assets.
Chapter 15 Bankruptcy
If you’re a foreign entity, you’ll file chapter 15 bankruptcy. This filing gives foreign debtors access to the United States bankruptcy court.
When Should You File for Bankruptcy?
If your finances look grim, you’re probably wondering when you should file for bankruptcy. The fact is that there is no best time to file.
However, if it will take you more than five years to pay off all your debts, you shouldn’t worry about when to file for bankruptcy, but how.
Furthermore, filing for bankruptcy can result in long-term penalties. For example, the filing will stay on your credit report for seven to ten years.
Additionally, there’s an emotional component to filing for bankruptcy. Although the process is highly uncomfortable, you’ll experience great relief once you’re free of bankruptcy bills.
Understanding What You’re Getting Into
There’s a stigma that surrounds filing for bankruptcy. That stigma exists for a good reason.
A bankruptcy filing destroys your credit and your ability to borrow money. Also, it will remain on your credit report for around ten years.
At some point, you may once again need to apply for a loan. If so, you cannot deny that you have filed for bankruptcy.
Alternatives to Bankruptcy
Not everyone qualifies for bankruptcy. However, there are other steps that you can take to resolve your debt if you don’t qualify for the process.
These alternatives to bankruptcy have less of an impact on your credit. For example, you can enter a debt management program. Alternatively, you can apply for a debt settlement.
Both processes take three to five years to resolve. Neither one, however, guarantees that you’ll clear all your debts on the outset.
Build Your Financial Savvy!
After making an honest assessment of your situation and asking yourself “Should I file for bankruptcy?” you may choose to go forth with the procedure. Although bankruptcy can provide you with relief from debt, it also comes with significant consequences.
Nevertheless, bankruptcy can help you get back on track. If you’re still unsure when should you file for bankruptcy, your lawyer can help you decide.
No matter what your situation, it helps to learn the basics of finance. Keep tabs on our blog to learn more about managing your money.