With the economy in a slump, more and more people are trying to figure out how they can get out from underneath the pile of enormous debt that they may have. Just a few years ago, everyone was finding it easy to pay off their credit cards and loans simply because the job market was doing well. However, as more companies are going out of business, more people are losing their jobs, their homes and their credit ratings are plummeting, thus many turn to bankruptcy, as they see this as the only way out.
What is Bankruptcy?
Bankruptcy is the process that a person goes through when they can no longer pay for their debts. This process is very long and tedious and will require that the person utilizes a lawyer. However, in the end the person is usually given a clean slate, so to speak. They are no longer having to pay the credit card companies and banks since they have agreed to a settlement. However, the person does not get out of this process completely unscathed. Their credit will reflect the bankruptcy for up to seven years or longer. Meaning that getting new loans and credit cards can become quite a chore.
How do you declare bankruptcy?
Declaring bankruptcy is a long process, as noted before. However, you can make it much easier by having all of your information collected before meeting with a lawyer. You will need to have all of the names of your creditors, what you owe them, how much your monthly payment is and if are delinquent on these accounts, the months in which you are past due is needed as well. In addition, you need to know if the debt unsecured or secured. Secured debts are those debts in which there is collateral being held, for example a title for a car loan. Basically, these are the debts in which something can be taken away from you for not paying the loan. Unsecured debts are all those debts that do not have anything that is being held, for example, credit cards.
After this information is collected, your lawyer will advise on whether you will file a Chapter 7 or Chapter 13 bankruptcy. Which chapter you fall under is basically calculated by taking into account your income and Dependants, and comparing this to what the state deems appropriate for you and your family. If you income falls below what the state deems as average, you file a Chapter 7. However, if your income is above this average, you will file a Chapter 13 bankruptcy.
Once this has been calculated, the bankruptcy lawyer will then send out notices to all of your creditors that you intend to file for bankruptcy. The creditors then have a certain number of days that varies from state to state, in which they can respond and could possibly fight the bankruptcy. However, doing this time, you should have all collection calls and garnishment of your wages stopped.
It is important to note that due to federal law, the person declaring bankruptcy will be required to attend two debt management classes. These will be one before your lawyer sends the bankruptcy notice to the creditors, and the other one will be after the creditors accept your bankruptcy. If you choose to not attend these classes, you will lose the opportunity to declare bankruptcy.
Who should declare bankruptcy?
Bankruptcy should only be used as a last resort. This means that you should go through any other options that are available to you such as debt management plans that can allow you to pay one monthly payment to the creditors. Or you could also utilize debt negotiation that can allow you to pay one lump sum to the creditors and many times they reduce the amount that you will owe by going through this option. However, many times there is simply no other choice than to declare bankruptcy. When deciding if you should consider bankruptcy, you should also know that you can expect to pay a lawyer around $2000 or more for their help with the matter, and there is no way to get around having help from a bankruptcy lawyer. In the end, this lawyer will help you save even more money, so paying the fee is worth it.
With these aspects in mind, bankruptcy is not for everyone. If you have the income to make your payments, then by all means avoid declaring bankruptcy. However, for those that are at a risk of losing their home, their cars and basically their way of life, then it should be a consideration. Be sure to weigh whether the benefits of declaring bankruptcy will outweigh the disadvantages of the bankruptcy. Ask yourself if you can afford to get out of the debt mess yourself, if you can then avoid bankruptcy since it will do nothing but affect your credit negatively. However, if it seems like it is your last option, then consult with a good bankruptcy lawyer in order to make sure that your effort is not wasted.
