Many residents are familiar with bankruptcy. Bankruptcies are often associated with large companies that run out of money.
Businesses sometimes have no choice but to file for bankruptcy when their expenses outweigh revenue in a certain amount of time. Bankruptcy is a legal process that goes through the federal government. Any entity or resident who wishes to achieve bankruptcy must be legally approved.
Bankruptcy may be the best option for certain residents who have a large amount of debt. However, those who are considering this option should take the time understand what is involved in bankruptcy because there are both advantages and long-term disadvantages.
Moreover, there are different kinds of bankruptcies that resident can file for. Debtors should examine their options before making any choices regarding bankruptcy. Two options that are at the highest level of bankruptcy include liquidation and reorganization. Even within these options, there are more decisions to make such as whether the resident want to exchange their assets to pay back their lenders or if they want to get started on reestablishing their finances.
The process of bankruptcy involves eliminating debt with the help of the federal government. The main benefit of this strategy is that residents can obtain debt relief and be able to start over financially. However, debtors do risk having Chapter 7 bankruptcy on their credit reports for 10 years.
In addition, certain debts will not be removed with bankruptcy such as government debts, student loans, unpaid taxes and secured debts. To remove a debt like a student loan, debtors must provide evidence of a hardship that does not allow them to make payments. A disability that prevents a resident from working, and thus repaying the loan may qualify.
There is more than one type of bankruptcy that debtors can file for. Residents can file for either a Chapter 13 or Chapter 7 bankruptcy with their federal court. A Chapter 13 bankruptcy allows debtors to keep their assets, such as houses and vehicles, in the bankruptcy process. However, a Chapter 7 bankruptcy involves asset liquidation it is with this type of bankruptcy that residents can lose their homes.
Because there can be a lot of risk associated with bankruptcy, residents should consider their decision very carefully. Filing bankruptcy can make it difficult for debtors to obtain a line of credit, acquire life insurance, purchase a home or get a job due to the impact it has on credit scores. Residents should consider other options of debt relief before deciding on bankruptcy.
Advantages of Bankruptcy
Filing for bankruptcy is a serious decision that is legally binding. Residents considering this option should carefully consider it and only as a final resort. Some may view it as a way to restart financially, but that is not the case in reality. However, there are a number of advantages for debtors who are forced to file. For instance, filing can provide some residents with the necessary time they need to earn enough to pay back certain debts. Filing for Chapter 13 bankruptcy helps to delay making debt payments. Debtors will temporarily be relieved of collection calls and be able to create a new payment plan that is better suited to their situation. This new plan can involve lower payments over an extended period of time. Residents struggling with medical issues or disability can benefit from this.
In few cases of Chapter 7 filings, residents will be absolved from making any other debt payments if all of their assets are liquidated. However, this is very rare and often only granted to applicants with permanent disabilities or are completely unable to repay any other their debts now or in the future for other acceptable reasons. Residents who are approved for Chapter 7 will be required to handle the legal repercussions for delinquent debts.
Overall, bankruptcy reduces the stresses associated with large amounts of debt such as collection calls and payment due dates. Essentially, it gives residents another chance at creating healthy finances.
Drawbacks of Bankruptcy
While bankruptcy can benefit many residents and help them recover from debt sooner, there are several risks and drawbacks that debtors should be aware of. This includes the lengthy legal process as well as the stigma that accompanies bankruptcy. Additionally, not all debts will be removed through bankruptcy. Therefore, residents will still be responsible for paying off certain debts regardless if they filed for bankruptcy.
Moreover, bankruptcies remain on a credit report for 10 years which can cause other issues for debtors. For instance, residents may have a hard time securing a job, obtaining a line of credit or getting loans. Furthermore, filing for bankruptcy can harm both spouses, not just the one filing. Thus, it is essential for families to discuss bankruptcy before making such a long-term decision.
Alternative Options to Bankruptcy
Before deciding on bankruptcy as a debt relief strategy, residents should research other options for debt management. For instance, certain debtors may be eligible to take legal actions against debts that they do not believe are legitimate. However, residents who are responsible for their existing debts but cannot make the necessary payments should contact their lenders a first step.
The primary concern for lenders is to get the funds that they loaned out back. As a result, lenders and banks are often willing to negotiate new terms for repayment and create new payment plans. Some solutions include extending the period for repayment or reducing monthly payments, sometimes both.
Unfortunately, some lenders are not open to negotiations. In such cases, residents may be able to get a loan for debt consolidation. However, this process can be risky and involves numerous steps. Thus, before attempting any financial strategy, debtors should consult with a professional. This is especially true for those considering bankruptcy. Residents should only move forward with his option if their advisor thinks that it is the best decision for their financial future.