Bankruptcy

Bankruptcy

If you are currently underwater in debt that you think you could never repay, bankruptcy may be something to consider. The advantage of bankruptcy is the ability to write off and discharge many of your debts. In other words, your debts are legally foregone. 

The major downside, however, is the derogatory mark on your credit history that can remain on your credit report for 10 years. Legal and court fees also are expensive, while certain debts cannot be waived by the court. Tax obligations, federal student loans, fines, and family law obligations, such as alimony and child payments, will not be waived. Homeownership opportunity will also be affected as you will find it difficult to impossible to take out a mortgage. 

The two categories of bankruptcy that you may consider are Chapter 7 and Chapter 13.

Chapter 7

Chapter 7 is the more common of the two types of bankruptcy and it allows you to forgive obligations to pay unsecured debt. This allows you to restart your finances and begin with a blank slate; however, the negative drawbacks warrant serious consideration before filing.  Your credit history will be damaged for an extended period of time. Assets determined by the courts can be sold off to remit on outstanding debts. Chapter 7 bankruptcy will not clear you of most tax obligations or any federal student loan debt. You will still be obligated to repay, and it has become more difficult in recent years to qualify for Chapter 7 in the first place.

No minimum or maximum debt is required to file for Chapter 7, but the courts require you first pass a “means test”. This is conducted to exclude people who have high incomes or sizable assets. Many people excluded from Chapter 7 qualify for Chapter 13 instead.

Chapter 13

It is now more difficult to qualify for Chapter 7 bankruptcy, so more people are opting for Chapter 13. Filing for Chapter 13 bankruptcy requires that you still repay some or all of your debts over time. Some debts may be reduced in the restructuring. Once a repayment plan has been worked out, you make payments to the court. The court then distributes money to your creditors at the direction of a court-appointed trustee. Needless to say, it’s a very intrusive process.

Chapter 13 bankruptcy is a longer and more expensive option than Chapter 7, but an advantage could include keeping your home by working with your bank.

Both types of bankruptcy will severely tarnish your credit, so the decision to file for bankruptcy should not be taken lightly. Make sure to consult with an attorney licensed in your jurisdiction before choosing this option.

Debt Settlement vs. Bankruptcy

With the drawbacks of bankruptcy outlined above, debt settlement presents itself as the better option. Debt settlement doesn’t require the majority of your assets to be sold and it doesn’t stay on your credit report for nearly as long bankruptcy. 

Let us help you take back control of your finances and future.  Contact us today and rest assured that we will be your guiding light.