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Please Help! Should I File Bankruptcy? Here’s Everything You Need to Know

22 April 2020 No Comment

Depending on the state of the economy, millions of US citizens may file for bankruptcy in any given year. While filings have been low since the 2008 housing crisis, given current events, we’re likely to see a surge in bankruptcy filings in 2020 and beyond.

If you’re asking yourself “should I file bankruptcy?” but you’re not sure if doing so is the right move, we advise that you hold on filing and to continue reading. Read on to learn everything you need to know about bankruptcy and its repercussions to help you come to the best decision.

What is Bankruptcy?

To understand the consequences of bankruptcy, it’s important to have a grounding in its definition. Bankruptcy is defined as a legal proceeding that enables debtors to become free of their debt and lenders to (in some cases) retain portions of what they’re owed.

When bankruptcy is filed, a debtor declares that they are unable to pay their debts. The truth of that statement is measured by courts in the way of an investigation of a debtor’s assets.

If it’s determined that a debtor is indeed in financial trouble, the court may order that certain assets they posses be transferred to their lender to make good on portions of what’s owed. Afterward, debt is forgiven.

Why Do People File for Bankruptcy?

The main reason why individuals file for bankruptcy is to get a fresh start from debt. When buried in debt, interest can make it so debt balloons swell uncontrollably which can create conditions where no matter how hard a person works, there’s no way they can overcome their payment obligations.

In some cases, bankruptcy proceedings are triggered by lenders that want courts to help them settle portions of their debt with people they’ve lent to. This is rare as bankruptcy almost always leaves lenders with less money than they’re owed.

Businesses may also file for types of bankruptcy as a strategic move to reduce debt and continue operations.

Bankruptcy Pros and Cons

Weighing pros and cons is a helpful way to come to a conclusion about whether or not to file for bankruptcy. Here are two key advantages and disadvantages of a bankruptcy filing that are worth considering.

Pro – You Can Get Out of Debt

The obvious advantage of bankruptcy is you can relieve most of your debt. You may still need to pay portions of what you owe through your existing assets (note that your home is likely exempt from collections) but overall, you’ll end up paying much less than what you owe.

Pro – Collections Calls Will Stop

The absolute worst part about being in debt for some is the harassment that accompanies it. If you’re getting calls from collections companies, if your neighbors are being notified of your debt, bankruptcy requires all of that to stop.

Objective harassment via collections calls is illegal, bankruptcy or not. Review today’s collections laws to see if what you’re experiencing is legally defensible.

Con – You’ll Hurt Your Credit

Your credit lets lenders know how trustworthy of a borrower you are. While many things can hurt and help your credit, bankruptcy is perhaps the most destructive prospect your credit can face. Many lenders won’t even consider giving you money if you have a bankruptcy on your record within the last three years.

On a positive note, bankruptcies do eventually fall off of your credit report.

Con – Not All Debt Can Be Discharged Via Bankruptcy

Certain types of debt cannot be discharged via bankruptcy. For example, student loan debt is bankruptcy exempt and must be paid back.

A bankruptcy attorney can work with you to understand what your options are depending on where your debt originated.

Alternatives to Bankruptcy

We understand that when you’re buried in debt, bankruptcy may seem like the best way out. Considering the damage filing can do to your credit though, you may want to consider alternative approaches to getting out of debt.

A few of your options include:

1. Refinancing Your Debt

If your debt’s interest rate and monthly payments are too high, look for refinancing opportunities. Another lender may be willing to buy your debt off of your current lender and will offer you better terms that will reduce how much you need to pay each month.

2. Get Portions of Your Debt Forgiven

There are several bankruptcy attorneys and organizations out there that can help you negotiate a settlement with your lender. A settlement is a reduced amount that you’ll pay back to lenders in exchange for agreeing to not declare bankruptcy.

3. If You Can, Pay Your Debt As-Is

A small group of borrowers have the money to pay their debt but don’t due to principle or neglect. When you borrow money and the terms surrounding your borrowing are clear, it’s best to fulfill your end of the arrangement by making your payments.

If the terms surrounding your borrowed money were not clear, you may have a viable consumer fraud case that you should speak to a bankruptcy attorney or other legal professional about.

Should I File Bankruptcy? Keep Exploring Resources

Every year, hundreds of thousands of people or more ask “should I file bankruptcy?” We hope that the insight we’ve given you has brought clarity to that question.

If you’re’ still considering filing, you’re welcome to continue reading more of the bankruptcy content on our blog for additional context. There’s also plenty of great articles on a wide range of other topics too. Be sure to check them out.

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