“Bankruptcy” can be a scary word. We think back to our time as kids, playing Monopoly – when bankruptcy meant losing all of your money and being out of the game. If you’re considering filing for bankruptcy in your current financial situation, it can be a scary thought. And while doing so is certainly a big step, it is much easier to go through when you know exactly what you are getting into. Below are some bankruptcy basics, to help you decide if it is right for you, and how you can proceed.
What Is Bankruptcy?
First, it’s important to know what bankruptcy is. According to Nolo.com, bankruptcy is “a process that allows consumers and businesses to repay some or all of their debts under the protection of the federal bankruptcy court.” This means that you still have to pay your debts, but you are given a little bit more time, and don’t have to risk losing your assets. It is a legal filing that helps you manage your debts, but it does have some drawbacks.
The Benefits Of Bankruptcy
But first, let’s talk about why you would file bankruptcy. Let’s say your debts have grown out of control. You pay as much as you can each month, but because of interest rates, you are not making any headway. Eventually the debts become so severe that you risk losing things like your home or car. Obviously, losing your home or your transportation to work would make it harder to pay back your debts, so the situation is serious. With a bankruptcy filing, you get some protection.
Typically, when you file bankruptcy, you are given a reasonable timetable in which to repay your debts. You are also given asset protection, so that you don’t lose your home, business, or car. These legal protections make paying back your debts a little easier, which is why people choose to file for bankruptcy.
The Drawbacks of Bankruptcy
Of course, there are some drawbacks to filing for bankruptcy. The biggest of which is that your credit score will take a hit. Filing for bankruptcy sticks with you for a long time, and even if you get your financial situation in order, you could still feel the effects of your bankruptcy filing years later. This could make it hard to get a loan or home down the road, so it is something that you will want to carefully consider.
Different Types of Bankruptcy
According to The Law Office of Charles Huber, There are several different types of bankruptcy filings, and the one you need will depend on your situation. For example, you would use a Chapter 13 bankruptcy if you have sufficient income to repay part of your debts, and a Chapter 7 bankruptcy if you are going to be selling off some of your assets in order to make payments. Before you make a decision, it is a good idea to read up on the different requirements for each type of bankruptcy, or to speak with a professional.
How To Go About It
Once you’ve decided that you want to file bankruptcy, your area will have different laws for how to go about it. You’ll want to find out the regulations specific to your town or state, and see how you can go about filing. Look for your local bankruptcy court, and they should be able to direct you towards all of the paperwork you’ll need to fill out in order to file. Try not to become overwhelmed by all of the paperwork presented to you, and if you are still struggling, consider hiring some outside help.
Take Your Time Before Making A Decision
Filing for bankruptcy is a big decision, so do not go into it lightly. You should explore all of your other options for paying back your debts, and only consider bankruptcy as a last resort. While there are legal protections in place to help you pay off your debts safely, they come at a cost. It is important to think about what is right for not only your current financial situation, but for your future as well. Hopefully this article was able to provide a little insight as to how bankruptcy works, and you’ll be able to decide for yourself if that is the best course of action.