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Essential Hints on When to File Bankruptcy
Any person would not want to file bankruptcy. As we see on television and social networking sites, to file bankruptcy is to lose everything. In its terms, bankruptcy simply pertains to a system of federal laws permitting businesses and individuals to get relief from debts in order for them to restart their financial state. This law was constituted in order for an individual to forge a new future without pressure from creditors who collect pre-existing debts.
Different Kinds of Bankruptcy
Bankruptcy is described in two parts, namely:
- Chapter 13 bankruptcy. This refers to repayment plan that will help in reorganizing and adjusting debt. This is the right choice when you have income but you do not want foreclosure of your home or catching up present debts.
- Chapter 7 bankruptcy. This will liquidate all the non-exempt assets in order to pay creditors. Generally, this is a good option when you already have a huge amount of unsecured debt such as credit cards and medical bills.
Pros When You File Bankruptcy
If you file bankruptcy immediately, this will help putting your creditors on notice for them to stop collecting money. They call this automatic stay, which prevents creditors from calling you, filing lawsuits, sending collection letters, seizing assets, and garnishing wages. Nonetheless, this is not applicable in the collection of child support and alimony. Granted that you have a successful bankruptcy case, the court will then issue a discharge on certain debts; in this case, you need not repay your creditors.
Cons When You File Bankruptcy
Of course, there is a disadvantage when you file bankruptcy. Very rare do bankruptcy discharge debts from student loans, taxes, mortgages, child support, or alimony. In addition, you can lose certain property that is nonexempt in bankruptcy especially if the court orders selling your properties. Significantly, if you declare bankruptcy, your credit score will go down even if you had a previous bad credit score. Chapter 13 will remain on your credit report for 7 years and chapter 7 will remain for 10 years. Eradicating debt with bankruptcy can hurt more than what you expect. An individual or company may deny you of any financial assistance by using bankruptcy. This may lead to higher insurance rates, denial of rental application, or inflation in security deposits.
When to Declare Bankruptcy
This can be a hard phase especially if you do this alone. That’s why the government provided laws to protect the creditors and debtors as well. Once the court approves bankruptcy, the creditors should stop contacting the debtor. Individuals who are still working and paying their debts can still keep their possessions and property for several years with filing bankruptcy. If there is a need for bankruptcy lawyer, it is best to assess details on financial security first prior to filing bankruptcy. It is important for any individual to understand their legal options and regard bankruptcy evaluation first before filing one. There are several pros and cons laid out in this article for you to assess fully if you need to file bankruptcy.