Filing for bankruptcy is an emergency debt relief option but it is not the best option. It is a process that involves many financial and legal issues. Bankruptcy will lower your credit score and this will affect your ability to acquire loans in the future. You should make an honest assessment of your current financial position and decide if bankruptcy is the best option. It would be advisable if you also sought financial advice before filing for bankruptcy. Discussed below are factors to determine if bankruptcy is your only debt relief option;
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Explore Alternatives to Bankruptcy
Usually, bankruptcy is considered as the last debt relief option. There are other alternatives that you may consider such as debt settlement or coming to an agreement with your creditors; this will ease your debt. There is private credit counseling services that you may use to have the creditors roll out a new payment plan for you. Debt settlement is considered to be the best debt relief option because you get to pay only a percentage of what you owed.
Understand the Types of Bankruptcy Chapters
If you own assets and wish to keep them, Chapter 13 provides for reorganization of the debt through a multi-year payment plan. With chapter 7, there is liquidation of the debtor's assets so the debt is cleared and the debtor may proceed without a payment plan. Some states have exemptions on personal property and vehicles.
Analyze the Short-term and Long-term Effects of Bankruptcy
You may successfully eliminate your debt but this will negatively affect your credit score. if you file for bankruptcy, it will show up in your credit report for a very long time (Usually more than 10 years). This will affect your ability to acquire loans in the future and in some cases getting employed.
Evaluate Your Debt Load
Assess your income and determine if there is money left after budgeting which you can use to repay what you owe. If the balance is not substantial to settle the debt, filing for bankruptcy may be your last option.
Determine the Value of Your Assets
If you do not own much in terms of assets, Chapter 7 will be the best option for you. With Chapter 13, you may have exemptions which could work to your advantage. If you do not have any assets or income, then you need not worry as there is nothing that the creditors can seize to settle what you owe them.
Determine if There Were Co-signers on the Past Loans
Take a good look at your past loans to check whether you had any co-signers. This is because when you file for bankruptcy, the debt becomes theirs. If there are any co-signers, talk to them and agree on the best way forward.
Consult Your Attorney
Filing for bankruptcy is a complicated process. Discuss with your attorney as there is good advice that you can get that will enable you to make the right decision. You should try to comply with the federal laws.
As stated earlier, filing for bankruptcy should be your last option. Talk to a credit counselor and determine if there is an alternative option.
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