A very informative article from msn.com read the article here. https://www.msn.com/en-us/money/personalfinance/heres-how-to-survive-bankruptcy/ar-AAvYOOg
Even the most responsible people can run into financial hardships. Sometimes these issues get so bad that they can't get out from under them. For those with unmanageable debt, one solution is to file for bankruptcy.
Having to file for bankruptcy can take an emotional and financial toll. Even so, in 2017 alone, there were 765,863 non-business bankruptcy filings, according to the Administrative Office of the U.S. Courts. While bankruptcy is a legal solution that can dismiss large portions of debt, it comes with serious consequences and requirements. Understanding what bankruptcy is, how it impacts your finances and the advantages and disadvantages can help you survive and recover from this financial shakeup.
What is bankruptcy?
It is the legal process to relieve individuals and businesses when they are unable to pay their debts. The process is complex and may require hiring attorneys who specialize in this topic. Every bankruptcy is unique, and the court will evaluate each individual's financial situation, their debt and their ability to pay back that debt to determine whether they can declare bankruptcy. If the court decides that you can declare bankruptcy, it will also decide what debt is dismissed and may still require you to pay back some of your debt. Keep in mind that declaring bankruptcy will negatively impact your credit history make getting loans and new credit cards difficult or require you to accept a higher rate.
When is bankruptcy a good idea?
Bankruptcy will not only relieve you of certain debt, but the court will usually assign you a budget, so you can repay your remaining debt. It will stop foreclosures of homes, repossessions of cars and other property, cease wage garnishments and prevent your utilities from being turned off. Also, creditors and collection agencies must stop contacting you for repayment once you file for bankruptcy. If they continue calling after you notify them, they can be fined.
While each case is different, bankruptcy can reduce or dismiss common debt from credit cards, medical bills, past-due utility bills and even rent. Keep in mind that there is debt that is never, or rarely, dismissed by bankruptcy, such as child support and alimony, student loans and owed taxes. And while you may no longer be required to pay your car payment, your car may be repossessed.
What are the types of bankruptcy?
While businesses usually file Chapter 11, for individuals, the most common types of bankruptcy are Chapter 7 and Chapter 13. Each has its advantages, and your personal situation will determine which may be appropriate for you. In Chapter 7, the court sells your property and assets to pay back your debt. Any debt left over will be dismissed. Some property is excluded, but you could lose your car and home. This bankruptcy will stay on your credit report for 10 years, and you won't be able to file again for eight years.
In Chapter 13, you will work with the court to repay a part or all of your debts. In this bankruptcy, you can retain your possessions and assets and not have them sold or repossessed. Repayment plans can last from three to five years and the bankruptcy will be on your credit history for only seven years. And if you have to, you can refile a Chapter 13 bankruptcy in as few as two years.
How can you improve your credit after bankruptcy?
One of the biggest consequences of declaring bankruptcy is the impact to your credit. Not only will the filing impact your credit, but any loans or credit card debt settled by the bankruptcy will also be negative items on your credit report. After bankruptcy, you may not be eligible for new loans and credit for years after you file, and you can expect banks, lenders and credit card companies to charge you higher interest rates and require security deposits and larger down payments for the products they offer. While you can't offset the impact of bankruptcy to your credit, there are things you can do to improve it over time.
Try to avoid adding any new negative items to your credit report by sticking to a budget, paying all your bills on time and avoiding building new debt. Research any new loan or credit application to see whether bankruptcy will cause automatic denial. Applying for new credit too soon or having multiple denials can hurt your credit even more. A good tool to improve your credit is a secured credit card. These cards require a deposit, which can be equal to your spending limit. Otherwise, you can use them like any credit card. Paying the full balance every month will have a positive impact on your credit.
During bankruptcy, you may have the opportunity to make a reaffirmation of a debt, where the specific debt is not included in the bankruptcy. This would be beneficial for something like a car loan, where you would be able to keep your car as long as you can still make the payments. Keeping the loan in good standing can help you build your credit.