No one ever really wants to have to declare bankruptcy. At the same time, there are times when the only way you can keep your home or business is to do just that. Bankruptcy is a legal maneuver that plenty of people tend to take when they feel as if they have no other options. You have probably heard about people who are going to declare bankruptcy, but there are obviously some things you should know if you are thinking it’s a solution you might have try yourself.
1- There is more than one form of bankruptcy.
while there are actually several different kinds of bankruptcy, the ones you have likely heard about are Chapter 7 and Chapter 13. When people are going through chapter 7, they tend to have to discharge all of their debt by liquidating most of their assets. If people don’t have a ton of assets to begin with, this can actually be the preferred way to go. If you want to keep your home and your car, you are running a risk going through this process.
Chapter 13 is a form of bankruptcy where you work with creditors in order to find a way to pay back your debtors over time. This is the preferred method for most people, if they are allowed to do it because they get to keep their assets, or at least most of them.
2- This isn’t some free process.
What most people don’t realize when they start the process of bankruptcy is that they are going to owe even more money when all is said and done. This is because they need to hire a lawyer to get them through the process. Lawyers tend to bill by the hour. Generally, bankruptcy attorneys are not cheap.
3- It can hurt your credit in the short run.
some people believe that going through bankruptcy is going to magically repair your credit. While there are ways in which you can kind of get a fresh start, the fact of the matter is that in the short run, it’s going to absolutely destroy your credit. The really bad news is that declaring bankruptcy can show up on your credit report for as long as 10 years. That means the damage you have done to yourself better be bad, because it’s going to take a long time before you are able to bounce back and fix everything.
4- You are making a request, not a declaration.
People think that you just declare bankruptcy and then no one can touch you if you owe money. The fact of the matter is that one of the reasons you are going to need a lawyer is because a judge is going to have to accept that you need to go into bankruptcy. This is a big step in someone’s life and it’s not one people can do everytime they go into some debt. The judge might deny your request if he thinks something is fishy.
5- Creditors can challenge your request.
If you are someone who is truly having financial issues, the judge is more than likely going to allow you to go into bankruptcy. On the other hand, if creditors feel as though you are just trying to get out of paying your bills, they can challenge the request. If those creditors can show that you are not someone who really needs bankruptcy protection, the judge might decide that you are going to have to pay them off. The judge can also leave a certain creditor outside the ruling. This means you can work out how to pay off most people, but will still see massive credit rating hits from one creditor.
6- It can be used to fix your credit.
While bankruptcy is supposed to be a painful process that people are supposed to avoid, the fact of the matter is that it can be something that helps people if you are really in dire straights. After you go through the process, you can start to pick up after yourself and rebuild. The process does do what people think it does, it just usually doesn’t do it in the way they think.