Bankruptcy is a term that may seem like the end of the financial road for most people, and in some cases this may be true. However, bankruptcy may be the only solution to a financial crisis and the only way to get your life back on track. Indeed, bankruptcy may be a last resort but it can also cleanse you of all of your current financial burdens so that you can have a cleaner future. 

Bankruptcy is considered the nuclear option when it comes to debt and finances, and even if you think you have no other option, there are a few things to consider before declaring bankruptcy.

Before deciding whether to declare bankruptcy, you can try to contact your creditors to see if you can negotiate for lower debts or the removal of certain fees. When you declare bankruptcy, you are no longer responsible for paying back most of your debts, and creditors know this

They also know they will not be able to recoup any losses through personal bankruptcy, so they will be more willing to negotiate for a different payback period, rate, or debt amount. This way, they get some of their money back, and you do not have to declare bankruptcy. So it’s always a good idea to call your creditors and loan servicers to see if you can negotiate a way for a different, viable payment plan or even some kind of loan modification if you are paying a mortgage. Even the IRS may be willing to compromise if you owe too much in taxes.

If you decide that bankruptcy is the only option for you, there are several other factors that you need to consider:

• Do you have a lot of bills or debts that you simply cannot pay off with your current income? This can include credit card debt, medical debt, and loan debts.

• Do you risk losing your home? If you are at risk of a foreclosure, you may consider a Chapter 13 bankruptcy.

• Do you want to keep long-term assets, retirement funds, and investments? A lot of people may come under outstanding debt but do not want to use their nest eggs to pay off it.

• Do you want a fresh start? A bankruptcy can help you reduce most or all of your debts to allow you to get a fresh financial start.

If you do consider bankruptcy as your last and only option left, you must also consider the long-term, negative consequences of a bankruptcy. A bankruptcy will appear on your credit history for up to ten (10) years, which may prevent you from getting future loans, insurance, and other lines of credit. Keep in mind that you cannot also keep declaring multiple personal bankruptcies within the seven or ten-year timespan of a previous bankruptcy, so if you want a fresh start, it’s very important that you begin to practice financial responsibility and stability.

Once you have decided to go through a bankruptcy, there are two types of bankruptcy to consider:

• Chapter 13: If you still have a job and steady income, a Chapter 13 bankruptcy might be good for you. This type of bankruptcy allows you to keep your property such as your house, land, or car. The court will approve and give you a payment plan to pay off your debts throughout three to seven years instead of liquidating your assets and property. Once all payments have been received, the court will dismiss the bankruptcy, and the bankruptcy will be considered a discharge of debts.

• Chapter 7: This is the more familiar bankruptcy where you have to surrender all assets and property to pay off your debts. There are some exemptions to this such as a car or anything work-related. The property and assets will be turned over to a trustee and liquidated. This includes your home if it’s unpaid or has any liens against it.

Either way, both bankruptcies will clear you of your debts and may stop any mortgage foreclosures and full repossessions of your assets. Keep in mind that you’ll most likely keep anything that may be pivotal to your livelihood, again like cars and work tools. Depending on the state, you may also have to go through a six-month-long process of credit counseling before filing bankruptcy where they assess what you owe, what your assets are, and what your current income is.

Bankruptcy can be a hard and stressful experience, so it’s important to understand the process and what goes through a bankruptcy, and what the consequences are. If you believe that you have no other choice but to file bankruptcy, then you must file one with a local federal court and they will aid you in the process. For more information on the procedures for bankruptcy, click here for the full details on what to do.

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