Going bankrupt is a status you find yourself due to unavoidable circumstances. And deciding to declare that you are bankrupt is not as easy as it sounds. Many people have a negative perception about bankruptcy; however, sometimes, it can be the best approach to start a new and clean slate financially. To save your financial woes, you can strike a deal with creditors by filing a consumer proposal.
The only downside to declaring bankruptcy is the implications you get for your credit ratings. Also, it affects your debt and your current plus future financial standing. It will affect your credit report from 7 to 10 years and prevent you from opening any credit accounts or requesting loans with promising interests. But the benefits exceed the negatives when you try to weigh both sides.
If you are contemplating whether to take bankruptcy status, here is the information you should understand first.
Understanding Bankruptcy
Going through the process bankruptcy process is not for a faint-hearted. It is a complicated procedure that requires somebody to help you maneuver through to the end. The best way to successfully beat the process is hiring an experienced attorney to help you go through the needed procedures to make sure you comply with all the applicable governing proceedings.
Before filing for bankruptcy, you need to meet certain requirements. First, you need to prove that you can repay all your outstanding debts and ready to undergo credit counselling provided by a government-approved credit counselor. The counseling session helps you assess your financial standing, figure out any alternatives to bankruptcy, and guide you by creating a personal budget plan.
If you decide to proceed with bankruptcy, you need to choose either chapter 7 or chapter 13. Both of these bankruptcy chapters can help you eliminate unsecured debt, stop repossession, foreclosure, debt collections, utility shut-offs and irs wage garnishment.
Choosing either of the two chapters, you are the one to pay all the expenses, both the attorney fees and court costs. But here is how the two chapters differ in relieving you from debt.
Chapter 7 Bankruptcy
In other words, it’s also called straight bankruptcy, and many people consider it to be straight when filing chapter 7 for the first time. Under chapter 7, you are required to let a federal court agent oversee the sale of assets that are not let off. The amount of money that is collected is used to pay creditors. And the remaining balance that you owe is excluded after the bankruptcy is settled.
Choosing Chapter 7 does not guarantee you to clear all types of debts. You are required to pay child support, court-ordered alimony, student loans, and taxes.
What are the Consequences of Chapter 7?
You may lose your property, and negative bankruptcy information on your credit card will not be removed for ten years starting from the day you filed bankruptcy. Additionally, if you get into another debt, it is impossible to file for bankruptcy again for 8 years.
Chapter 13 Bankruptcy
Chapter 13 differs from chapter 7 in several ways. For instance, you can keep your property after you agree to repay your debt entirely or partially. Under this chapter, the court and attorney may negotiate a 3 to 5 years plan repayment plan. During the negotiation, you may agree to settle all the debt you owe or partially for the given repayment period.
After you honor to complete the agreed amount during the given period, your debt is discharged irrespective of whether you settled the original amount you owed. While both chapter 7 and 13 negatively affects your credit ratings, the latter is more favorable. Because this chapter 13 allows you to settle all amount or part of it and still retain some assets.
Chapter 13 bankruptcy cycles off your credit report after 7-years, and you may be eligible to file even within 2 years.
Advantages to Filing for Bankruptcy
When you file for bankruptcy, you are granted an “automatic stay,” which prevents creditors from proceeding with any action to collect a debt from you or repossessing any of your assets such as a house or car. Additionally, it hinders them from contacting you, sending letters or suing you.
- You may discharge your responsibility to repay part of dischargeable debts.
- When you file for bankruptcy it prevents eviction and foreclosure.
- While a bankruptcy will remain on your records for 7 to 10 years, the majority of debtors start to improve their credit ratings after filing for bankruptcy.
- You get relief from losing the things you value and the mental anguish that comes with debts. It allows you to start life afresh with less stress.
- When you file for bankruptcy, you get access to financial counseling that gives you a chance to free tools to help you learn and balance your debt plus better manage your life in future.
- Filing for bankruptcy helps you retain some assets and manage your payments by settling small amounts.
Disadvantages of Filing for Bankruptcy
Although filing for bankruptcy gives you relief and better focus on your future. It can affect your normal life and financial standing for the long term. Here are the disadvantages of filing for bankruptcy.
- Your bankruptcy report will have bad credit ratings between 7 to 10 years.
- You will have a hard time getting accepted for a new credit card request as many creditors will cancel your credit cards upon filing for bankruptcy.
- When looking for a job or to a new home, employers and landlords may unfavorably treat you due to bankruptcy filing.
- Since your bankruptcy filing becomes a public record, it may be hard for you to secure a good job.
- If you have joint accounts, creditors may ask to be paid from cosigners on those accounts or non-bankrupt debtors.
- Filing for bankruptcy may affect your social life as you may find it embarrassing when others learn about your bankruptcy status.
Bottom Line
When you cannot repay your debt, as you earlier agree with your creditor, it can negatively impact your credit. Some of the available debt relief comes with consequences that are long term than others and damaging. Therefore, it is advisable to make a sober decision before opting to file for bankruptcy. You can research other options, including seeking professional guidance from a qualified credit counselor. After that, you’ll weigh your choices and see which option impacts your financial future positively.
Disclaimer: This article contains sponsored marketing content. It is intended for promotional purposes and should not be considered as an endorsement or recommendation by our website. Readers are encouraged to conduct their own research and exercise their own judgment before making any decisions based on the information provided in this article.
