Among the most unfortunate things about bankruptcy is the public’s opinion. Often seen as a financial failure, people often overlook the benefits of bankruptcy. The laws guiding bankruptcy give Americans a second chance after an unfortunate financial event.
However, bankruptcy is not an easy “do-over” button either. Knowing when and how to declare is essential to getting the most out of bankruptcy.
Consider all the factors before filing
Bankruptcy is available for citizens who have exhausted all other options. Individuals concerned about preserving their credit score should explore these options completely before filing for bankruptcy:
- Credit counseling: Several non-profit organizations offer credit counseling services. These professionals look over a person’s finances and provide solutions for budget management and spending decisions. Counselors can help set people up with debt management programs, debt consolidation loans or even settlements with creditors.
- Budgeting: People usually file for bankruptcy after an unfortunate cascade of events, like losing a job and getting injured in a car accident. Many people’s reckless spending habits cause most money problems. Strict adherence to a meager budget can help many people in this situation, alongside taking a second job or liquidating assets.
- Repayment plans: Most creditors would prefer their clients to pay back their debts rather than take a loss through bankruptcy. Individuals facing litigation from creditors might be able to settle the suit with a comprehensive repayment plan.
After exploring these relief methods, bankruptcy might remain the best option for many.
Qualifying for bankruptcy
Even if the above tactics did not work, not everyone is eligible for bankruptcy. Individuals can file for one of two types of bankruptcy:
- Chapter 7: Often called “straight bankruptcy,” Chapter 7 is for those whose bills outstrip their income. An individual’s income must be less than the median income for the size of their family to qualify. Upon filing, a person will liquidate their assets to pay what debts they can. The law then waives other debts, not including student loans, alimony, child support, and court-ordered payments.
- Chapter 13: Reserved for those with higher incomes, Chapter 13 bankruptcy will not cancel any debt. Instead, this bankruptcy allows an individual or a business to consolidate debt into a 5-year repayment plan. Those who recently filed for bankruptcy are ineligible.
An attorney can help
Individuals who think bankruptcy can help them can reach out to a local lawyer familiar with bankruptcy law for answers. An attorney can help assess options and discuss the next steps.