For many people, “bankruptcy” is a scary word. Being bankrupt, after all, is pretty much a confirmation that you are in financial trouble. You have more liabilities than assets, a fact you’ll be declaring in a forum as public as the bankruptcy court.
However, bankruptcy isn’t the boogeyman most people paint it to be. If anything, bankruptcy may be a viable option for those who are up to their eyes in debt. It can help relieve them of previous liabilities or get them more favorable repayment plans.
Then again, filing for bankruptcy is a decision that no one should take lightly. It’s not exactly a painless, cure-all solution for your financial woes. It has its own set of pros and cons.
So, before you hire an experienced bankruptcy lawyer, find out if you have reason enough to file for bankruptcy. It’s also important to realize that bankruptcies can vary slightly from state to state. So, for example, the income requirements for filing a Chapter 7 bankruptcy in Kentucky may be different than the income requirements for Chapter 7 bankruptcy in Tennessee.
A person deep in debt likely receives a steady stream of demand letters and phone calls from creditors. Such collection tactics can put a lot of pressure on any person.
For many people in debt, declaring bankruptcy has become the only way to relieve that pressure. Doing so, after all, helps them avail of the “automatic stay” provision in U.S. bankruptcy law.
An automatic stay is an injunction that will put the collection efforts of creditors and collection agencies on pause. While their case is in bankruptcy court, creditors are not allowed to contact, pursue, or take any action against them.
Of course, people file for bankruptcy to receive debt relief, or better repayment terms if they’re filing for Chapter 13. However, in many cases, people file for bankruptcy just to shake creditors off and get some much-needed breathing room.
If you’re considering filing for bankruptcy, you may need to assess your current financial situation before coming to a decision.
If any or all of the following apply to you, it’s probably time for a visit to the bankruptcy court.
When your liabilities far outweigh your assets
Do you have so much debt that even your entire income is barely enough to service them? If this is the case with you, a bankruptcy filing could be your only way out.
When you’re incurring more debt to pay debts
Credit cards have their upsides and downsides. However, when you’re using them to pay off your creditors, then doing so definitely falls under the latter category.
You will only push yourself deeper into the quagmire if you use credit cards to pay your debts. Apply for bankruptcy protection now to stop yourself from making your financial situation worse.
When An Individual Faces A Debt Collection Lawsuit And Cannot Pay
A debt collection lawsuit can force people to make a decision about their debt that is behind. In these situations, you may be in a position where you still cannot pay back the debt. When a collection agency sues, the agency may be trying to get a judgment to eventually garnish wages. For example, the cost of Chapter 7 bankruptcy can be much smaller than the amount that you owe in debt.
When your creditors won’t give you more manageable repayment options (California example)
You have the option to talk to your creditors and work out a better repayment plan. If negotiations fall through, it’s probably high time to seek relief from a bankruptcy court. For example, let’s say you are considering filing Chapter 7 bankruptcy in California. Because California is an expensive place to live already, let’s say that your current expenses command almost 70% of your take-home pay. In this situation, it may be difficult to make ends meet, just due to the fact that you live in California.
When you can’t pay off all your debts within a given time frame
Calculate all your debts and see if you can repay them all within, say, five years. If achieving that is close to impossible, then you need to seriously consider filing for bankruptcy.
As mentioned above, filing for bankruptcy is not a decision to be taken lightly. Weigh everything carefully, from your financial situation to the benefits and consequences that come with seeking bankruptcy protection.
Know that all your non-exempt assets will be up for liquidation if you file for Chapter 7 bankruptcy. The proceeds will then be used to pay off creditors.
Chapter 13 bankruptcy, meanwhile, provides you a reorganization plan that will give you extra time to settle your debts. The payment terms will be better, too.
You should also be aware that your bankruptcy filing will definitely go on your financial record. In all likelihood, it may diminish your ability to avail of loans within a specified period.
Once you’ve decided to seek bankruptcy protection, it would be best to seek an experienced bankruptcy attorney to help you through the process.
Bankruptcy is a legal debt relief option that many individuals choose to get relief from burdening debt. The purpose of this article is to explain why people file bankruptcy and when they file bankruptcy.