It can be incredibly difficult to come to terms with the fact that you are overwhelmed with debt you are not able to pay back. Debt can accumulate in different ways. Perhaps something out of your control caused you to make financial decisions you may never have made under normal circumstances. Perhaps you simply made some bad choices without fully thinking the consequences through. No matter your situation, you deserve a second chance! No one should have to suffer under the weight of their debt forever.
In many cases, filing for bankruptcy can actually help you become more financially stable than you were before. However, the stigma around the word “bankruptcy” often holds people back from learning of the benefits. There are myths that circulate around bankruptcy which lead people to believe that if they file, their credit score will never recover, and their chances at being able to take out loans in the future are wiped out. This is not true! It is worth taking the time to learn the pros and cons of bankruptcy when it comes to your personal finances.
Chapter 7 Bankruptcy Basics
Many people choose to file Chapter 7 bankruptcy if they qualify for it. In order to qualify, you must submit a “means test” if your current monthly income is more than the state median. Chapter 7 bankruptcy is also known as “liquidation” bankruptcy, as some of your assets may be liquidated to pay off your unsecured debt. Many assets – such as your personal belongings and things essential to your daily life – are protected from this and will not be sold. Unsecured debt comes from sources like credit cards, medical bills, or personal loans. Your credit will take a significant hit, but the bills and debt that have been weighing on you will go away almost immediately! The harassment from your creditors will also stop. It is also a relatively short process, lasting between 4-5 months to be completely resolved.
Chapter 13 Bankruptcy Basics
Those who are not eligible to file for Chapter 7 bankruptcy because they do not qualify may choose to file for Chapter 13. This is also known as “reorganization” bankruptcy, or “wage earner’s” plan. You will work together with your bankruptcy lawyer and the courts to develop a payment plan to repay your debts. This process lasts much longer than Chapter 7 – anywhere from 3 to 5 years. However, Chapter 13 has the power to stop foreclosure or repossession, and allows you more time to get caught up where you are behind.
Credit Impact & Loan Eligibility: The Good News
Even though choosing to file for bankruptcy can be a tough choice to make and a stressful process to go through, there are still some bright sides to it when it comes to your personal finances. Here are 3 pieces of “good news” that go with bankruptcy:
- Your Credit Can Bounce Back.
Once again, it is a myth that filing for bankruptcy destroys your credit forever. Your bankruptcy filing will negatively impact your credit score and remain attached to your credit score for the next 10 years if you file for Chapter 7, or for 7 years if you file for Chapter 13. However, if you’ve been battling debt for a while and your credit was already low, the impact won’t be felt quite as much. Your credit score can and will bounce back over time.
Without the burden of immense debt and bills holding your credit score down, it will actually begin to rise fairly quickly. You will no longer be making payments on those debts which had a low chance of ever being repaid. Instead, you can allocate your funds into the right places and begin to see an improvement in your credit score in as little as 60 days after filing in most cases. Although you will still be impacted in some ways, the alternative of not filing will mean that the large outstanding balances continue to hold down your credit score and you continue to be harassed by creditors and lenders.
- You Can Still Get Loans And Credit Cards.
Filing for bankruptcy does not prevent you from being able to apply for credit cards or loans for the next 10 years. The reality is that people coming out of bankruptcy are oftentimes targeted by lenders. While the reason for this may be nefarious in nature (they know your debt has been eliminated and that you can’t file for bankruptcy again for another 8 years!), if this is a concern that’s been holding you back from filing, you can rest assured that you will still be able to do these things. Granted, your interest rates will probably be high – and you should be sure to make smart choices that do not lead you back into the debt you just recovered from!
- You Can Learn Better Habits.
While it may be cliche to say, it is true that filing for bankruptcy really does give many people the “fresh start” they need with their finances. However, this doesn’t mean that you should continue to make the poor choices that led you into debt in the first place. With the loss of your outstanding balances, you can use this as an opportunity to learn new, better habits when it comes to your money.
You are required by the court to complete certain courses during the bankruptcy process regardless if you choose to learn new ways to manage your finances or not. Before filing, you must complete credit counseling, and before your debt can be discharged, you will complete a debtor’s education course. There are also other sources of financial information you can seek out, such as a free, local workshop or even something as simple as a social media account dedicated to providing advice that helps people stay out of debt! In the digital age, the resources really are endless for obtaining information that can improve your life.
Call The Santos Law Offices, P.A. For More “Good News”
To reiterate, filing for bankruptcy doesn’t have to be something that strikes fear into hearts everywhere! When faced with the alternatives, filing can greatly increase your chances of obtaining financial freedom. Our bankruptcy lawyers are highly experienced and passionate about providing peace of mind to those who feel they have no options left. Call today to set up your free consultation and let us handle the heavy lifting.