Bankruptcy is the toughest choice a person can ever make, but it is not easy to come to the point where you think of declaring bankruptcy.
It generally can happen if you have enormous debts that you can’t pay off, are behind on your mortgage payments and on the verge of foreclosure, or are being hounded by bill collectors—or all of the above. It may be, or it could not.
Even though bankruptcy can decrease or eliminate debts, save your house, and put bill collectors away in some situations, it also has major implications, including long-term credit harm and increasing costs for the long-term plans.
This might make it harder to borrow money in the future, boost your insurance premiums, and even make it difficult to get work.
If you come to the point where you want to file for bankruptcy, you need to be aware of the procedures and do everything well to avoid any problems.
Filing for bankruptcy entails several legally mandated procedures, and failure to compile any of these procedures may result in your lawsuit getting dismissed.
Individuals must attend a credit counseling session and get a certificate to include with their bankruptcy petition before filing for bankruptcy.
Your counselor should assess your specific circumstances, provide budgeting and debt management advice, and explain bankruptcy options.
Call the federal bankruptcy court nearest you or go to its website to get the names of government-approved credit counseling services in your region.
Following your filing, the bankruptcy trustee assigned to your case will schedule a creditors’ meeting, generally known as a 341 meeting, after the bankruptcy code’s part.
A bankruptcy court will decide your case based on your facts.
You may lose your case and face criminal charges if the court finds that you sought to hide assets or committed other deception.
After filing for bankruptcy, you have to take and complete a debtor education course after filing for bankruptcy, but before your debts get dismissed, to learn about budgeting and money management.
You’ll need to get a certificate to prove your participation once more.
In the case of Chapter 7, your debts will get dismissed if the court rules in your favor. A repayment plan will be in action according to Chapter 13.
What Happens After Bankruptcy
Individual bankruptcy has various negative repercussions in both cases.
A Chapter 7 bankruptcy will be on your credit report for ten years, whereas a Chapter 13 bankruptcy will appear on your credit report for seven years.
According to one of the major national credit agencies Experian, your credit score will plummet, making you look to be a bad risk to firms who seek your reports, such as other lenders, insurance companies, and possible employers.
It’s also worth noting that the number of times you may have your obligations erased through bankruptcy is limited.
If you’ve had debts wiped in a Chapter 7 bankruptcy, you’ll have to wait eight years before you can do it again.
What You Need and When to File a Bankruptcy
Generally speaking, you would either need a lawyer or nothing. Corporations or anyone besides individuals need lawyers to represent them.
However, unlike businesses and partnerships, individuals can petition for bankruptcy without the help of an attorney.
It’s known as “pro se” case filing. 6 However, because bankruptcy is complicated and you must do it correctly to be successful, it is often foolish to undertake it without the assistance of a bankruptcy attorney.
What are the Alternatives
Bankruptcy is not always the best option. There are frequently alternatives to bankruptcy that might help you lower your financial commitments without the negative effects.
Negotiating with your creditors outside of the courts can sometimes be beneficial to both sides.
A creditor may agree to a repayment schedule that decreases your debt or spreads your payments over a longer period of time rather than risk getting nothing.
Forbearance, which allows you to cease paying payments for a set amount of time, or a repayment plan that spreads out smaller monthly payments over a longer length of time are two options.
Another alternative is a loan modification, which alters the terms of your loan permanently (for example, by decreasing the interest rate), making it simpler to repay.
Be wary of unsolicited proposals from firms claiming to be able to save your property from going into foreclosure. They might be nothing but can artists.
Bankruptcy is a choice that many people avoid making because it is one of the worst things that could happen to your financial profile as it lowers your credit score, increases your premium prices for insurance, and makes companies wonder whether you will be able to make any payment when you are taking a loan, and your mortgages get riskier with high-interest rates.
That is why you should always try to avoid filing for bankruptcy and make sure that you are not even close to being bankrupt.
Even though there are other ways than filing for bankruptcy, sometimes these ways are not enough.
Some of those ways could be agreeing with the other side or other sides to create a new payment schedule or going another route.
When your only option is bankruptcy, you have to be extremely careful and do your due diligence well not to make any mistakes, as it often creates major problems when you do something wrong.
If you wrongfully filed for bankruptcy and you ignored details, this could get your case dismissed, which would block you from opening another case and put you in a horrible situation.
Filing for bankruptcy is not easy, and you have to do it extremely carefully to avoid any painful problems in the future for you and your financial profile.
You can always change your financial profile for the better after filing for bankruptcy, but you have to be extremely careful with every decision you make financially and stay on the radar of where your money is going.
Amit Gupta is the founder of National Planning Cycles, a company that helps startups, individuals, and small businesses with their financial planning. He has a vast amount of experience in the finance sector, having managed Google Play accounts for some of the world’s most successful unicorns. Amit is an expert in his field, and he uses his knowledge to help others achieve their individual goals.