When Is Bankruptcy The Answer?
Making a decision about declaring bankruptcy is never simple and is not an easy choice to make. There are many negative connotations and emotions associated with bankruptcy which makes many people think twice about declaring bankruptcy, but in some cases, declaring bankruptcy is the only reasonable answer. There are a number of things that should be considered when making the decision of whether or not to declare bankruptcy and careful consideration of these factors will help you make the best choice for your financial situation.
The Bankruptcy Process
The first thing that happens when a person files for bankruptcy is all current collection efforts are placed on hold. This includes collection efforts, foreclosure proceedings, and wage garnishments. If the person files for Chapter 7 bankruptcy, nearly all of their unsecured debts will be erased, but some of their property may be seized to repay some of the debt. If the person files for Chapter 13 bankruptcy, then a portion of their debt is erased in return for an agreement to repay part of the debt and they are allowed to keep their property.
In some cases where the person’s income exceeds the median income for the area that they live in, they must meet certain qualifications to apply for Chapter 7 bankruptcy. If a review of the case shows that the person should be able to repay some of their debts based on their income, then the person will not be able to declare Chapter 7 bankruptcy and will have to apply for Chapter 13 bankruptcy and repay a portion of their debt.
Choosing An Action
Many people arrive at the conclusion that they would be better off filing for bankruptcy after a long and arduous term of trying everything they can to dig themselves out of the financial hole that they find themselves in. Large debt loads of high interest debt, like credit card debt, are one of the main reasons why people choose to file for bankruptcy. Other reasons for choosing bankruptcy include high medical bills due to an accident or serious illness, job loss, and divorce.
If you find that your debts exceed your annual income and they would take decades to pay off, then you may be better off filing for bankruptcy and making a fresh start. This is especially true if your debt is high interest debt. Also, if you would need to use assets to pay off your debts that would otherwise be protected under a bankruptcy filing, such as the equity in your home or the money in your retirement account, bankruptcy may be your best option. Be realistic about your current situation and talk to a financial professional that you can trust if you find yourself in a situation where you are considering bankruptcy.
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