Deciding whether or not to file for bankruptcy is a big decision. The financial impact that bankruptcy has will last for years and will definitely impact options available to you.
While filing for bankruptcy is a serious decision, and shouldn’t be the first option you consider, there is nothing wrong with going this route if it is the right option for you and your family. But, how do you decide if you should file for bankruptcy? It’s vital to weigh this decision properly given all the facts - keeping that in mind, read on below for guidance on whether filing is right for you at this time.
What is Bankruptcy?
For those that are having trouble meeting their debt obligations, bankruptcy is a legal process that businesses and individuals can go through in order to have some or all of their debt discharged. Once a debtor has initiated the bankruptcy process, all assets will be evaluated and could be potentially used to settle a portion of the debt.
There are 3 types of bankruptcy filing options:
- Chapter 7 - This is for businesses and individuals who do not have much in the way of assets that can be used to repay their debt. For any part of the unsecured debt owed that cannot be repaid with things like jewelry, the debt can be discharged.
- Chapter 11 - This is usually the plan that businesses will opt for. Chapter 11 allows a business to continue to run but will institute a plan to settle their debts owed and allow them to become profitable again.
- Chapter 13 - This type of bankruptcy allows individuals to work on a repayment plan to settle their debt while retaining their assets.
Bankruptcy is a serious decision and will impact you or your business negatively, specifically with your credit score and history being impacted for 7-10 years. However, sometimes bankruptcy is the best option for your credit situation depending on how much is owed and the type of debt accrued.
Common Reasons for Filing Bankruptcy
If you’re considering filing for bankruptcy, it’s helpful to consult with a bankruptcy attorney to help you weigh the pros and cons of a bankruptcy and determine if it’s right for you. Some of the most common reasons people decide to file for bankruptcy are:
- Inability to meet repayment obligations
- Drawing from accounts such as 401k to settle debt repayments
Each situation is unique, so it’s always best to consult with an experienced lawyer before proceeding with a decision to declare bankruptcy.
What Other Options Have You Considered or Tried?
Because bankruptcy will severely impact your credit health and you can potentially lose essential assets, you should consider other options that may help first. Some other routes those with debt may consider are:
- Credit counseling
- Debt consolidation
- Debt settlement
- Personal loans
- Zero interest credit cards
Do You and Your Debts Qualify?
Not everyone will qualify for bankruptcy, and your financial and debt situation may determine what kind of bankruptcy you can file for if you do. Your income, assets, and the amount of debt that you owe will contribute to what your bankruptcy options are; also, bankruptcy laws vary from state to state. If you are unsure and need guidance, it’s always best to contact a bankruptcy lawyer for help in navigating your options.
Positives vs. Negatives of Bankruptcy on Home and Finances
As discussed, bankruptcy is a big financial decision that will absolutely impact your credit history; but there are some other aspects you’ll want to consider before filing, too, such as:
- Bankruptcy can affect your current job or ability to secure a new one. Some companies will not hire people who have declared bankruptcy within a certain amount of time. Bankruptcy is publicly noted, keep in mind, so you won’t be able to keep the process discreet.
- Cosigners will be affected by your choice to declare bankruptcy. You’ll need to discuss what you’re considering with them because it can severely impact their credit score and history.
- If you have any upcoming goals of owning a home or purchasing a car, bankruptcy will affect and limit your options for 7-10 years.