Bankruptcy should be the final financial distress resort, where it offers one a fresh start after liquidating their debts. The year 2020 has seen a tsunami of individuals and businesses filing for bankruptcy. The projections brought forth by various experts, including bankruptcy attorneys and bankers, claim that the COVID-19 pandemics will cause a historical financial storm, which will push more people into bankruptcy.

What is bankruptcy?

Bankruptcy is a legal procedure directed by the federal government. It aims at assisting individuals in repaying or eliminating part or all their debt. Moreover, bankruptcy can have several benefits for people who are struggling with debt. These benefits include:

• Fresh start: Bankruptcy can help you get a fresh start financially. Once you receive a discharge of your debts, you’ll no longer be legally obligated to pay them.
• Protection from creditors: Once you file for bankruptcy, your creditors are legally prohibited from contacting you or taking any legal action against you to collect their debts.
• Lower credit card interest rates after rebuilding your credit: Once you’ve filed for bankruptcy and have begun to rebuild your credit, you may qualify for lower interest rates on credit cards. When you file for bankruptcy, most of your debts are discharged, which means that they’re no longer considered valid debts. This can help improve your credit score by removing negative items from your credit report, such as late payments, charge-offs, and collections. However, it’s essential to note that it may take years for your score to recover. 

However, though bankruptcy offers immediate relief on what you owe, it’s important to note that it has a long term effect on your credit score as mentioned earlier. Not only that but it also has some risks, which include the following:

• Loss of property: In some cases, you may have to surrender some of your property to the trustee in order to pay off your debts.
• Legal fees: Filing for bankruptcy can be expensive. You’ll need to pay legal fees to an attorney who can help you file your case.

Whether or not you should file for bankruptcy is a personal decision. You should weigh the benefits and risks of bankruptcy carefully before making a decision. If you’re considering filing for bankruptcy, you should talk to an experienced bankruptcy attorney who can help you understand your options.

What to do before you file for bankruptcy

Bankruptcy is a complicated process, and you should not attempt to go through it blindly. Here are some steps you should take before you act:

• Update your paperwork- Organize your list of debts and verify the amounts for each.
• Take a look at the available options- Do all you can to repay your debt before filings.
• Financial coaching- Get a financial coach to help customize a financial plan to help get you in the right direction.
• Look for professional help- If filing for bankruptcy is the only viable option, you will need a professional to walk you through the murky waters.

Types of Bankruptcy

The process is quite complicated, and as such, the average person requires the assistance of a professional bankruptcy attorney to help the process smooth. Various rules and regulations must be adhered to and met before and during the bankruptcy proceedings. To start with, you have to show that you are unable to repay your loans. You also have to undergo a sit-in with a credit counselor who is government approved.

If there is no other alternative and you want to start bankruptcy proceedings, you will have to choose the type to file either chapter 7 or chapter 13. Let’s take a look at each type:

Chapter 7 bankruptcy

The chapter calls for a federal court trustee to watch over the liquidation of assets not exempted. The money received from the sale goes towards paying creditors. Chapter 7 bankruptcy has some dire consequences, such as loss of property and adverse credit reports that last for ten years from the filing date. Additionally, you won’t be able to use the chapter to file for bankruptcy again for at least eight years.

Chapter 13 Bankruptcy

It’s different in that you can keep your property partially or wholly after paying your debt. Your bankruptcy lawyer will help negotiate a 3 to 5 years loan repayment plan. After repaying in the agreed period, your debt is discharged even after only a part of what you initially owed.

Though the bankruptcy chapter also reflects negatively on your credit score, it may be the better option because it gives you a chance to retain some assets. Better still, chapter 13 bankruptcy fades off your credit after seven years, but you can use the same chapter to file again after two years.

Debts not forgiven

Bankruptcy can eliminate and reduce many debts; however, it does not set you completely free if you have various unforgivable debts. Such debts include:

• Child support
• Student loans
• Taxes alimony
• The government imposed fines and penalties
• Court fines and penalties
• Student loans

Conclusion

Bankruptcy can be a viable option of debt settlement when you have exhausted all the other alternatives. Doing more research on bankruptcy options and engaging a bankruptcy attorney can help ease your mind as you go through the process. For more information, go to murrylaw.net