By Jen LynchMyth: I'll just file bankruptcy and start over; it seems so easy.
Truth: Bankruptcy is a gut-wrenching, life-changing event that causes lifelong damage.
I found this on daveramsey.com the 'Truth about Bankruptcy'. I thought it was an appropriate, accurate description. Thanks, Dave.
Truth: Bankruptcy is a gut-wrenching, life-changing event that causes lifelong damage.
I found this on daveramsey.com the 'Truth about Bankruptcy'. I thought it was an appropriate, accurate description. Thanks, Dave.
So before you jump into the life-changing event that ruins your existence, there are a few important things to consider;
1. Educate yourself- You can file a Chapter 7 or Chapter 13. Chapter 7 (Liquidation) wipes out most of your debts, but you must give up property that is not exempt from seizure by creditors. Chapter 7 also stays on your file for 10 years. Chapter 13 doesn't make you give up any property, but over a period of approximately three to five years (depending on amount of debt and your income) you must pay back creditors with your income. Chapter 13 stays on your file for only 7 years, but basically both stay with you FOR LIFE, because many job and loan applications ask if you have EVER filed, and lying is fraud. (aka Do not pass GO, and hope for a 'get out of jail free' card)
2. Look at alternatives- You may be able to negotiate with your creditors and make an out-of-court settlement if you have a steady income. Debt consolidation loans are another option if you have enough home equity, this is a more dangerous alternative however because you risk more to lose. You can also utilize nonprofit debt counseling services that work with you to improve your financial status. Declaring bankruptcy is a big deal, and often people can address their problems alternatively.
3. Consider what you are eligible for- There are certain requirements for both Chapter 7 and Chapter 13 filings. If you have enough income to repay debts in a Chapter 13 plan, then often you won't qualify for Chapter 7. On the other hand, if you do not have enough income or you have too much debt, you won't qualify for Chapter 13.
4. Know which debts will or won't be cleared- Bankruptcy clears all unsecured debt, such as credit cards. Some things, like child support and alimony can't be wiped out, you have a responsibility to pay them regardless. Sometimes you can get rid of student loan debt and tax debt, but this is very circumstantial, and you must provide additional testimony/proof to the court.
5. Find out if you could lose your home or car- If you have a mortgage on your home, you still have to make the payments if you declare bankruptcy. Depending on which you file for, you may or may not lose your house. Chapter 7 is riskier, because if your home or car has a lot of equity, it will be taken and factored in to what you owe. Chapter 13 allows you to keep your house, car etc and make payments through the payment plan.
6. Know what happens to your cosigner- If you file Chapter 7, your cosigner will get stuck with your debt. Under Chapter 13, they are not held accountable. You must make sure that if you have a friend or family member helping you, that they understand the consequences if you fail to repay what you owe.
1. Educate yourself- You can file a Chapter 7 or Chapter 13. Chapter 7 (Liquidation) wipes out most of your debts, but you must give up property that is not exempt from seizure by creditors. Chapter 7 also stays on your file for 10 years. Chapter 13 doesn't make you give up any property, but over a period of approximately three to five years (depending on amount of debt and your income) you must pay back creditors with your income. Chapter 13 stays on your file for only 7 years, but basically both stay with you FOR LIFE, because many job and loan applications ask if you have EVER filed, and lying is fraud. (aka Do not pass GO, and hope for a 'get out of jail free' card)
2. Look at alternatives- You may be able to negotiate with your creditors and make an out-of-court settlement if you have a steady income. Debt consolidation loans are another option if you have enough home equity, this is a more dangerous alternative however because you risk more to lose. You can also utilize nonprofit debt counseling services that work with you to improve your financial status. Declaring bankruptcy is a big deal, and often people can address their problems alternatively.
3. Consider what you are eligible for- There are certain requirements for both Chapter 7 and Chapter 13 filings. If you have enough income to repay debts in a Chapter 13 plan, then often you won't qualify for Chapter 7. On the other hand, if you do not have enough income or you have too much debt, you won't qualify for Chapter 13.
4. Know which debts will or won't be cleared- Bankruptcy clears all unsecured debt, such as credit cards. Some things, like child support and alimony can't be wiped out, you have a responsibility to pay them regardless. Sometimes you can get rid of student loan debt and tax debt, but this is very circumstantial, and you must provide additional testimony/proof to the court.
5. Find out if you could lose your home or car- If you have a mortgage on your home, you still have to make the payments if you declare bankruptcy. Depending on which you file for, you may or may not lose your house. Chapter 7 is riskier, because if your home or car has a lot of equity, it will be taken and factored in to what you owe. Chapter 13 allows you to keep your house, car etc and make payments through the payment plan.
6. Know what happens to your cosigner- If you file Chapter 7, your cosigner will get stuck with your debt. Under Chapter 13, they are not held accountable. You must make sure that if you have a friend or family member helping you, that they understand the consequences if you fail to repay what you owe.
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