If you’re even asking “Should I file bankruptcy?” the chances are you’re not in a great financial situation. Filing bankruptcy is a life-altering decision. Make sure you’re informed before you start the bankruptcy process.
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What is bankruptcy?
Bankruptcy is a ruling by a judge that says you are not liable for any debts you might have. It has to be done by a court order and it usually initiated by the person who has a lot of debt. Simply asking yourself, Should I file bankruptcy? is often what gets the ball rolling for most people who have a lot of debt.
If you are in debt that you just can’t seem to get under control, you might use bankruptcy as a way out.
Before you even begin thinking about filing, you should know that there are some things that cannot be included in a bankruptcy. Student loans are the most popular item people want to include in their bankruptcy but cannot. There are some extenuating circumstances where you might qualify to include your student loans in the bankruptcy, but you should also prepare yourself with other methods to eliminate student loans.
The difference between Chapter 7 and Chapter 13 bankruptcy.
If you start looking at bankruptcy, you’ll quickly find there are two types of bankruptcy: Chapter 7 and Chapter 13.
The biggest difference in the types of bankruptcy is repayment. The question is less about should I file bankruptcy? and more what kind of bankrupcty can I file?
With Chapter 13, you must have a steady income and be capable of repaying a portion of your debts. This type of bankruptcy allows you to come up with a plan using a debt counselor to determine how much you can pay back and what your payments will be. There will be very little room left for living expenses. During the time you’re making payments toward your debt, you will not be harassed by credit collectors. If you miss a payment, this could become null and void.
Chapter 7 is a different type of bankruptcy because it completely forgives your debt. You must be low-income or unable to make any type of payment toward repaying debt. This is an option for people who do not have a lot of money, who have a very poor credit score to begin with, have a lot of medical debt or who are disabled. Your attorney will help you determine whether you qualify for Chapter 7 or if you need to prepare for Chapter 13.
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Should I file bankruptcy? When bankruptcy is a good idea.
Filing for bankruptcy is a personal decision you should make based on your own situation. It may be a good idea if:
- You don’t have a way to repay your debt.
- You’re past the “point of no return” with credit card late payments.
- You can’t get your credit to budge.
- You don’t have the money to repay your debtors.
One important thing to remember is that bankruptcy will stay on your credit report for up to 10 years. Debts will only stay on your report for up to seven years. Many people who have filed for bankruptcy actually see a jump in their score after the bankruptcy is discharged. If you need to ask yourself: Should I file for bankruptcy? consider how it might make your life easier.
One thing to note is that credit collectors must stop calling you and harassing you as soon as you make the first move in the bankruptcy process – for many people, that’s more than enough to make the decision.
Here are reasons why bankruptcy might not be the best idea.
Bankruptcy isn’t the best option for everyone. If you feel like you’re right on the verge of being able to pay your debt or if most of your debt comes from student loans, bankruptcy might not be the way to go. Should I file bankruptcy? is a tricky question, these things can help you figure out whether it’s the right option:
- Your credit score will be affected (good or bad).
- You likely won’t be able to buy a house for several years.
- You could lose your house or your car in the process.
- Some landlords and even some employers might not accept you because of the bankruptcy (check to see if your state bans this practice).