Think Before You File For Bankruptcy
No one intends to go bankrupt. But if it happens to you, there are ways to handle the money issues smartly.
It’s like pushing a financial reset button. And for filers, that fresh start comes with its own set of gifts and liabilities.
If you’re considering bankruptcy, or just want to know more about it, here are some key factors to consider:
1. There are two main types of personal bankruptcy.
Chapter 7 allows the filer to walk away from debts entirely. This option is used by those whose debts are so high or income so low that after basic expenses they don’t have the money for a payment plan. Chapter 13 allows the filer to draft a plan to repay all or part of the debts over three to five years.
2. Consumers don’t use bankruptcy frivolously.
People turn to bankruptcy when they have major life events that significantly reduce their income, increase their bills or both, says Henry Sommer, past president of the National Association of Consumer Bankruptcy Attorneys. The most common reasons for bankruptcy: divorce, unemployment and medical bills.
Filing bankruptcy also halts, at least temporarily, collection attempts and foreclosures. If you’re unemployed or recently re-employed but facing foreclosure because of missed payments, Chapter 13 can help you save your home.
3. You have to qualify for a Chapter 7.
Consumers must show through income (if they are below the state median) or through both income and expenses (if they are above the state median) that they can’t repay their debts.
But since bankruptcy is often a last resort, filers who need Chapter 7 are having no problems qualifying.
4. Bankruptcy is not cheap.
Costs vary depending on your attorney and location. But in general, a Chapter 7 can run $1,500 to $2,500, while a Chapter 13 can run $2,000 to $4,000.
5. It may not make your credit any worse.
If you’ve had financial problems (chronic late and missed payments, charge-offs, etc.), it might not have much of an effect. And you could actually see your credit improve a year or so after bankruptcy.
6. A bankruptcy doesn’t protect joint account holders.
A bankruptcy dissolves your obligation to a creditor. But if anyone else is also on the hook for one of your debts, such as a joint account holder or co-signer, your bankruptcy makes that bill his or hers alone.
7. You’ll have to go to class.
Before you file, you’ll be required to take a 90-minute credit counseling class. Later, before your bankruptcy is officially concluded, you’ll take a second, two-hour session. You can attend in person, by phone or online. Cost: no more than $50 per class.
Before you file for bankruptcy make sure that you weighed all of your options to clear yourself from the stress. Going through an extensive credit sweep will save you money, time and unnecessary stress. We offer a few different Credit Sweep options that enable you to get back on the right road to credit recovery.
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