The cost of living continues to rise, but wages aren’t going up at the same rate. Men and women may find they struggle to stay afloat, thanks to the increased cost of gasoline, groceries, and other essentials. If you find you cannot make your monthly obligations, you may wish to file for bankruptcy.
Before taking this step, learn all you can about bankruptcy, what it involves, and what it means for your future. The consequences of bankruptcy are far-reaching, yet many people don’t realize this. They remain focused on resolving the immediate issue without thinking of what problems could arise in the long term.
Before Filing for Bankruptcy
Debtors need to consider other options before filing for bankruptcy. Creditors may negotiate with a debtor, for example. They recognize a bankruptcy could lead to them getting nothing when a court finalizes the case. For this reason, they often agree with debtors to lower the interest rate or monthly payment. They may even forgive a portion of the amount owed. It never hurts to ask.
Mortgage companies offer programs for homeowners facing foreclosure. They may allow the borrower to postpone payments through a process known as forbearance. At times, a lender will accept smaller payments over a longer period or modify the loan to allow the borrower to remain in the residence. Even the IRS works with taxpayers who owe money.
Filing for Bankruptcy
If bankruptcy appears to be the only solution, work with an attorney. They walk clients through the entire process and ensure the client understands the ramifications of this action and what will be required of the debtor as part of the process. For example, individuals filing for bankruptcy must undergo credit counseling through an agency approved by the United States Department of Justice Trustee Program.
Individuals may file either Chapter 7 or Chapter 13 bankruptcy. With a chapter 7 bankruptcy, a trustee liquidates the debtor’s assets to pay creditors, although some assets remain exempt from the process. In a Chapter 13 bankruptcy, the debtor keeps their assets but must repay the debts over a three to five-year period. Before filing for Chapter 7 bankruptcy, a person undergoes a means test to determine eligibility.
Discharging the Debts
Many people assume their debts will disappear as soon as a court approves the bankruptcy filing. This isn’t the case. Most individuals who file for Chapter 7 bankruptcy find the process takes approximately four to six months. For those individuals making use of the Chapter 13 option, the court doesn’t discharge the debts until the repayment period has passed. Once a court discharges the debts, however, creditors may no longer try to collect on the debt or take further action. The law prohibits them from doing so.
Speak with an attorney to learn which bankruptcy option is best for your unique situation. The means test plays a role in this decision, but other factors come into play as well. The attorney helps each client determine which option will provide them with a better financial future and the debt relief they need.