Bankruptcy was designed to help an honest person get out of debt. Essentially, bankruptcy can help wipe the financial slate clean for those who are buried under their debt.
Bankruptcy laws take into account both the needs of the individual in debt and the creditor who wants to get their money. If you file for bankruptcy, you’ll have to disclose all of your assets to the bankruptcy court (there is no hiding your assets), and the law will determine which of your assets are exempt. Depending on the type of bankruptcy that you file for, some of your assets may be taken by the trustee to help pay your debts, or you may have to set up a payment plan to pay your debts in part or in full.
Filing for bankruptcy is an important decision, one which should not be taken lightly; bankruptcy can have serious repercussions to your finances and credit score for 7-10 years.
Knowing whether bankruptcy is the best option for you includes being very familiar with your financial circumstances. Things happen in life—you may have lost your job, become ill, increased your debt, etc., and now you’re financially under water.
When you’re getting calls from creditors, you owe more than you’re worth, and you don’t think you’ll be able to manage your debt, it may be time to think about bankruptcy. You’ll need to consider your options completely and quickly: what you need to realize it that your debt is not going away and neither are the people who want to collect from you. Your debt is only going to accrue more interest, which will be increasingly hard to pay off if you are unable to increase your income.
The two most common types of individual bankruptcy are Chapter 7 and Chapter 13. We’ll discuss in our next blog post the differences between these two types of bankruptcy proceedings and how you can determine which is right for you.
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