Bankruptcy is not the end of the world, in fact, it could be your best exit strategy from financial dire straits.
The big thing you need to understand here is the fact that there are two types of bankruptcy that you are most likely to encounter:
- Chapter 7 bankruptcy is a scenario where there’s a temporary halt on all your current debts. During this period, your creditors cannot collect payments or foreclose on your home.
- Chapter 13 bankruptcy allows you to pay all your debts over the course of 3-5 years. This is why it’s also referred to as a wage earner’s plan.
Still, in order to see, whether this is the right thing for you to do, you need to follow a short checklist. Answer these several questions as honestly as possible and you will see your ideal course of action.
1. Is there any way for you to pay all your debts?
Be realistic, do you have enough income to ever pay off all your debt? We’re not talking about the amount of money that you make per month vs. the amount of money that you need to pay every month. We’re talking about your income, minus all your living expenses, minus a couple of emergency expenses every month. If these numbers don’t add up, bankruptcy may be the only option.
2. Do you have any relevant assets?
Assets can be sold in order to get some capital or borrowed against. If you don’t have any relevant assets or don’t have any relevant assets left, you won’t have much of a choice. Keep in mind that this would have been your exit strategy but now this strategy is unavailable.
3. Is there a realistic expectation for things to get better?
What are the odds that you get a raise? Is there a realistic chance that your business will turn around on its own and start making more money? If you’re expecting an inheritance or a lottery ticket to get you out of your problems, chances are that the situation is so desperate that there’s no going back.
4. Are you eligible, to begin with?
The biggest question you need to ask is whether you’re eligible for bankruptcy, to begin with. For instance, if your income is too high, you might not be eligible for Chapter 7 bankruptcy. If your debts are too high or your income too low, you might have to complete a Chapter 13 repayment plan before you can qualify. When it comes to something so technically complex, it’s probably best to hire some bankruptcy advice.
5. Will your job suffer because of your bankruptcy?
There are some industries in which bankruptcy has frowned upon more than in others. For instance, if you are a solicitor or an accountant, going bankrupt looks really bad. A similar thing happens if you’re a real estate agent. The key thing is that you find a way to be aware of the situation before you decide.
6. Are you comfortable with this going public?
If you go bankrupt, this will become something that you will no longer be able to hide. For a lot of people, the idea of tarnishing their public image is so terrifying that they’ll agree to anything else in order to avoid it? However, if this is an inevitability, chances are that others will know either way. So, postponing it may not be the real solution.
7. Do you have a bankruptcy fee?
One of the funniest things is that sometimes you won’t have enough money to go bankrupt. There’s the fee you’ll need to pay in order to go bankrupt, which means that you’ll either have to own that much money or have a way of acquiring it. Sure, this fee is not that high but it’s still there.
8. Do you worry about your credit rating?
Your credit rating will suffer greatly and bankruptcy will remain on your credit history report for 7 to 10 years. Keep in mind that the credit available while under bankruptcy isn’t that formidable, to begin with. You may not be able to get more than $500 without letting your creditors know of your bankruptcy. Bear this in mind before applying.
9. Are all your debts going to be forgiven?
Not all debts are forgiven when you file for bankruptcy. This is something that you need to understand right away. Child support, alimony and tax debts are not erased when you go bankrupt. Regardless if you go for Chapter 7 or Chapter 13 bankruptcy, this is the money that you’ll eventually have to pay back.
So, the biggest several considerations you’ll have to make are:
- Do you have other options?
- Are you eligible?
- What happens next?
These three considerations alone are enough to give you a general sense of whether you’re going in the right direction. However, if you’re really about to do this, it’s best that you consult professional help and learn as much as you can.