Debt can be overwhelming, especially when it’s accumulated over time and seems like there’s no end in sight. This is something many people can relate to, and it can quickly take over their minds as well as their bank accounts. It can start to feel like there’s no solution, no way to get out from under the mounting financial burden. The idea of filing for bankruptcy may be a terrifying one, but it is often the best option for those struggling with debt. This blog post will take a closer look at the benefits of bankruptcy, as well as how it works, and whether it’s right for you.
Many people don’t realize that bankruptcy may be a viable option to consider. Debt is often seen as a personal failing, and there’s a perception that bankruptcy has a stigma attached to it. But, this couldn’t be further from the truth. No one wants to file for bankruptcy, but it’s often the only way for individuals to start with a clean slate, put their finances back in order, and avoid spiraling into an even worse situation. In fact, the American Bankruptcy Institute reports that almost 40,000 consumer bankruptcy cases are filed in the United States each month, meaning it’s a more common solution than most people may think.
Here’s more about bankruptcy to help you decide if it’s the right solution for you.
What Type of Bankruptcy is Right For You?
The first thing to note is that there are two types of consumer bankruptcy: Chapter 7 and Chapter 13. Chapter 7 is the quickest option and can allow people to start over financially by crushing unsecured debts like credit card bills, medical bills, and personal loans. In contrast, Chapter 13 bankruptcy allows you to keep your assets like your house or your cars while you make payments on your debts, usually over three to five years. Get advice from professionals, such as bankruptcy lawyers in Macomb County, to see which route might be best for you.
How Does Bankruptcy Work?
Filing for bankruptcy is essentially a legal process that can help to clear all or most of your debts. Once you file, an automatic stay is put in place, which prohibits any further collection efforts by creditors, like wage garnishments, harassing phone calls, or foreclosures. The debts will then be assigned to a Trustee who manages the process of evaluating your case and figuring out what happens next.
After the case evaluation by the Trustee, several outcomes may occur, depending on the type of bankruptcy filed. In a Chapter 7 bankruptcy, it is possible that some of your property may be sold to repay your creditors. However, many of your assets may be exempt from this requirement, including a certain amount of equity in your primary residence, essential personal property, and tools of your trade. In a Chapter 13 bankruptcy, you will proceed on a repayment plan over three to five years, often paying significantly less than the original debt. At the completion of this period, any remaining unsecured debt is discharged. Both types of bankruptcy ultimately result in a discharge of most debts, providing the debtor with a fresh financial start.
The Benefits of Bankruptcy
Once you file for bankruptcy, the benefits you can get are numerous, starting with the relief from the constant stress and anxiety that debt can cause. Another benefit is the opportunity to rebuild your credit score. While it will initially take a hit, you’ll be able to move forward without the weight of your past debt history controlling you and should see a considerable improvement in your credit score after you receive your discharge. Finally, many people are pleasantly surprised by what they’re allowed to keep while going through the bankruptcy process.
Things to Consider
It’s vital that you look at your complete financial situation before deciding that bankruptcy is the right path for you. Something to consider is any property or assets you may have because you could lose some of them if you file. Moreover, you should also acknowledge that bankruptcy will negatively impact your credit score in the short to medium term, making it harder to get loans or credit cards for a period of time. .
Common Reasons People File For Bankruptcy
There are several common reasons why individuals resort to filing for bankruptcy. The following are some of the most prevalent:
- Medical Expenses: A significant number of people file bankruptcy due to overwhelming medical bills which can accrue due to a sudden illness or injury. Even for those with health insurance, high deductibles and uncovered procedures or medications can quickly lead to a mountain of debt.
- Job Loss: Unemployment can lead to financial distress, especially when it is unexpected or prolonged. The loss of income coupled with the drain of savings or retirement accounts to meet daily expenses can result in severe financial strain.
- Divorce: Divorce often results in a major financial upheaval. The legal costs, division of marital debts, child custody disputes, and ongoing alimony or child support payments can quickly deplete savings and escalate debt.
- Credit Debt: Excessive credit card bills, high interest rates, and late payment fees can create a cycle of debt that is difficult to escape from.
- Unexpected Expenses: Unforeseen events like property damage due to natural disasters or significant home or vehicle repair costs can abruptly thrust people into financial peril.
Taking the step to address your financial problems through bankruptcy is a big move, and it isn’t something that should be handled lightly. However, it can be beneficial for those who have no other options to get out of debt and give them a fresh start. Finding a qualified bankruptcy attorney to help you understand the legal issues involved in the process is an excellent first step. They can work with you to determine if this is the best course of action for your situation. And it’s important to remember that filing for bankruptcy is a tool that is there to provide relief and a chance at a better financial future.