The decision to file for bankruptcy is a huge one. Many people make the decision because they find themselves in over their heads in debt and don’t see a way out of the mess they’ve created. While the federal government does allow financially overwhelmed consumers to file for bankruptcy protection, it’s important that everyone considering doing so educate themselves on the process and how bankruptcy will affect their lives. Read on to learn some important tips that consumers need to know before they sign on the dotted line.
There Are Different Types Of options
Bankruptcy isn’t a one-size-fits-all solution. There are different types of petitions for different situation. Chapter 7 bankruptcy is used by those who don’t have money to pay back their debts. It wipes out unsecured debts, but it requires giving up non-exempt assets (such as recreational vehicles or vacation residences) in order to pay creditors back. Chapter 13 bankruptcy operates more like a three-to-five-year repayment plan but lets consumers keep their non-exempt assets. There are eligibility guidelines for each one (Chapter 13 requires a higher income while Chapter 7 requires a lower income), and which one a person qualifies for will be based on the results of a means test.
Consumers Will Still Have Responsibilities
It is important for consumers to realize that they won’t be able to just sit back and allow an attorney to do all of the work. They will have responsibilities to uphold as well. For example, there are usually two credit counseling courses the filers are required to take – one before the petition is filed and one after it is filed. Consumers will also have to show up for a meeting of creditors in which creditors are allowed to come to court to ask questions about the bankruptcy These things seem pretty straightforward, but not doing them could jeopardize the case.
This Isn’t A Free Ride
It is also vital that consumers understand that bankruptcy isn’t a free ride. It isn’t like a captaincash pawn shop where someone gets what they want in exchange for giving up some of their assets. First, not all debts can be wiped out, which means that those who have student loans, tax penalties, or court judgements cannot get out of paying those. In addition, bankruptcy will have a negative effect on a person’s credit, which means that they may have a hard time applying for loans and credit cards for years after the case is closed. Rebuilding a financial portfolio after bankruptcy is difficult, but it is important for consumers to know that it is also doable.
While the bankruptcy process can seem tedious and complex, it is usually well worth it for the opportunity that it provides to consumers to rid themselves (even if only partially) of the burden of debt that they carry. In the end, it can help a great deal toward helping people get back on track so that they can live a better life overall.