If your debt is piling up and you just don’t feel there’s a way to get from under it, then filing for bankruptcy is one possible solution. But the big question is should you do it or seek out another alternative?
In this article, you’ll learn about the two basic types of bankruptcy, other options, and what will happen if you decide to go forward with it. After reading this article, you’ll be in a better position to make the bast decision for your family.
Two Types of Bankruptcy
Chapter 7 – Cancels all your debts and a court trustee will be assigned to liquidate most of your property. However, excluded from the liquidation process are things such as pensions and retirement plans (401k, etc), tax-deferred education funds, and property you’re storing for someone else. You may also be able to keep your home. Bankruptcy laws and rules vary by state, so that’s why its hard to give a very specific answer about your home. Property that could be liquidated in one state may be exempted under another state’s laws.
Next, before you can file for Chapter 7 bankruptcy, you must go through credit counseling. However, you don’t have to implement their suggestions.
Finally, the bankruptcy process can takes up to 3 months and you’ll have to complete a boatload of forms.
Chapter 13 – This can be a good choice if you want to pay off your debts, but you just need more time. You’ll get to keep all your property. But unlike Chapter 7 where all of your debts are canceled, under Chapter 13 you’ll be given 3-5 years to pay off a portion or all of your debts.
The key here is that you still have to have a decent income coming in.
Also, you’ll still have to go through credit counseling, just like you would under Chapter 7. And the paperwork you’ll have to file will be quite extensive as well.
But as you can see there are variations between the two types of bankruptcies.
What to Think About
– Under Chapter 7, your home may or may not be liquidated. Whereas under Chapter 13, you’ll get to keep it. What’s your preference?
– If someone cosigned for a loan that benefited you, under Chapter 7 the cosigner will still be on the hook. Yikes! Not so, under Chapter 13.
– Everything you provide about your personal life in all those bankruptcy filing forms will become public record. Plus, the fact that you’re filing for bankruptcy will probably be printed in the newspaper and available online. You okay with that?
– Bankruptcies can stay on your credit report for up to 10 years. That’s certainly not a good thing, but it’s not the kiss of death. After a few years, you may be surprised when credit card companies start contacting you.
That’s because they will see that you don’t have any outstanding debts and they know the courts won’t allow you to file a second bankruptcy for a number of years. Of course, you’re not likely to get a great interest rate, but it is an olive branch.
For more insights into bankruptcies, check out our article…10 Things Filing for Bankruptcy Can and Can’t Do for You
Alternatives to Bankruptcy
Go through our White Wealth Belt mini-course. It lays out an easy-to-follow blueprint for getting your debt under control and taking the first steps to repairing your credit.
It also covers credit counseling and what such services may be able to do to get your debts lowered or eliminated. Sometimes a creditor will see the writing on the wall and agree to accept 30% of what you owe them rather than risk losing out on everything through a bankruptcy procedure.
The White Wealth Belt mini-course also covers the pluses and minuses of debt consolidation. This would allow you to take out one big loan that covers all your debts. The purpose for doing this is to get a loan that carries a much lower interest rate than your credit cards and other debts. Then, under the loan arrangement, just one payment would be made every month and that amount would get distributed to all creditors.
I hope that I’ve answered your question “Is bankruptcy right for me?”. If nothing else, your eyes should be opened a little wider about the nature of bankruptcies and what could happen. It’s probably wise to explore the alternatives before making such a big decision. And consider all the consequences of what can happen once you go down the bankruptcy road. As I mentioned above, read our White Wealth Belt mini-course and you’ll get even more information to help you make your decision.