Considering Bankruptcy? Here’s What You Need to Know
You’re drowning in high-interest credit card debt. You’re way behind on your payments. Your credit score has taken a nosedive. Every time your phone rings, there’s a debt collector on the line.
When debt gets out of control, it’s easy to feel like your whole life is out of control, too. And if things have reached that point, it might be time to consider declaring bankruptcy.
Don’t get us wrong: Bankruptcy isn’t an easy choice, and it’s certainly not for everyone. There’s a lot of time and paperwork involved in the process, and depending on the type of bankruptcy you’re considering, you may have to meet some very specific criteria. But it’s worth considering – especially if you’re running out of options.
In this article, we’ll look at the basics of bankruptcy to help you decide if bankruptcy is right for you.
Types of Bankruptcy
Declaring personal bankruptcy is a legal process that basically wipes out your existing debt (most of it, anyway – but more on that later) and prevents creditors from seeking repayment. For debt relief purposes, there are two types of bankruptcy that you can pursue:
- If your income is very low, you may qualify for Chapter 7 bankruptcy. Chapter 7 bankruptcy basically eliminates your debt – but it also typically requires you to sell off assets like your car or your home first.
- If you have a steady income, Chapter 13 bankruptcy allows you to keep your assets and work out a repayment plan to settle some of your debt. Folks who choose Chapter 13 bankruptcy make monthly payments for three to five years until their debts are settled.
Not sure which type of bankruptcy is right for you? A bankruptcy lawyer can help you determine your eligibility.
Regardless of the type of bankruptcy you choose, bankruptcy can provide a much-needed fresh start if you’re overwhelmed by debt. When you file for bankruptcy, your debt (or most of it, anyway) is wiped away. The collection calls stop. You can stop worrying about your debt and start rebuilding your life and your finances.
When to Consider Bankruptcy
Filing for bankruptcy is a big decision – but in some cases, it might also be the best decision. Here are a few signs that might mean that it’s time to consider bankruptcy:
- You’ve fallen so far behind on your payments that lenders and debt collectors are threatening to sue you.
- You’ve resorted to payday loans or car title loans to cover bills or pay for day-to-day expenses.
- You’re at risk of losing your home.
- You’ve drained your emergency fund, savings, and/or retirement funds – and you’re still drowning in debt.
- Your wages are being garnished.
One important thing to keep in mind: Bankruptcy applies to credit card debt, medical bills, personal loans, and even business debt – but it does NOT wipe away student loans. Even if you declare bankruptcy, you’ll still be responsible for paying back any money you borrowed for school.
What About Your Credit Score?
One of the most common objections to declaring bankruptcy is that it wreaks havoc on your credit score. Here’s the thing, though: It’s true that your credit score will take a hit after you file for bankruptcy. But it’s also true that your credit score will go down if you fall behind on your credit card payments – or if you stop paying them altogether. And if you’re at the point where bankruptcy is a viable option, chances are good that your credit score has already fallen.
The good news is that after you declare bankruptcy, you can start rebuilding your credit score. In fact, most folks’ credit scores actually begin to go up after bankruptcy.
Have Questions About Bankruptcy and Debt? Still not sure if bankruptcy is the best option for you? Need advice or strategies for dealing with high-interest credit card debt? If you’re feeling overwhelmed or unsure about your credit card debt, we can help. Call the friendly folks at American Credit Foundation today. We can answer your questions about debt and credit cards, and help you examine all of your repayment options.