How Bankruptcy Can be a Positive Life Change
For some, bankruptcy is a dirty word. It brings images of the bottom of the bucket, the worst thing that could possibly happen to an entrepreneur or head of household. However, the purpose of bankruptcy law suggests otherwise. You inform a judge that you appear to be unable to pay your debts. The court will then observe your financial situation to see if that is true. If it is, the court will look for ways to help you begin paying your debt under a plan like Chapter 13 bankruptcy or a “fresh start” like Chapter 7. Rather than it being the end, it can be a new beginning for you, changing your life for the better.
You’ve probably been inundated with stresses if you are currently considering filing for bankruptcy. Bill collectors are calling and writing, perhaps even threatening to sue. A bank may have begun a repossession or foreclosure proceeding on your property. Once you file for bankruptcy, some of these stresses will stop. The court will ask collectors to stop contacting you or pursuing legal action while you start over. You may get a little peace of mind.
No matter which form your bankruptcy filing takes, you’ll have a chance for a new beginning of sorts. You may:
- Save your home from foreclosure
- Begin to rebuild your credit score
- Get a new car
You’ll face some expense after a bankruptcy in the form of high interest rates if you need to borrow money for a car or loan. Because of the demonstrated credit risk, banks will only consider you for loans created for your special situation. You can rebuild your credit score with these loans. Using a secured credit card will also begin to help rebuild credit. However, the new start should include better financial habits.
A bankruptcy court may require you to participate in financial counseling. This is a another kind of new start, one that should help you to avoid mistakes that could lead to further trouble with your finances. It may not be a matter of poor judgment that brought you to bankruptcy. You may have endured a downturn in your business or a catastrophic illness that drained your resources. Financial counseling will help get you on the right track no matter what caused you to file bankruptcy.
Eliminating or Managing Debt
The goal of filing bankruptcy if you’re an individual is to eliminate the debt. Normally, in Chapter 7 bankruptcy, the court will force a sale of your assets to help satisfy creditors minus any assets the court exempts from the sale. For most individuals filing bankruptcy, there won’t be assets to sell. You’ll simply receive a release from personal liability for some or all of your debts. You’ll have to meet a means test to determine if you qualify for this elimination of some debts.
For Chapter 13 bankruptcy, if you are an individual with a regular income, the court will set up a repayment plan to make repaying the debts more manageable. You’ll be able to keep more of your property or assets. It’s less disruptive than Chapter 7; however, you may be under the court order for a significant period. At least you won’t have to deal with hassling from creditors.
Filing Bankruptcy Not Without Costs
Bankruptcy is not a cure-all for financial woes. The act of filing bankruptcy itself will incur costs as you will have to pay a fee (though you may be eligible to waive the fee). Some tax debts may continue to haunt you, and you’ll still have to pay student loans if you have them. Your lifestyle will change significantly, especially if you lived on credit and owned a few cars and a substantial home. There are also intangible costs that come with filing; namely, the negative associations with the process and the fact that your filing will be a public court record. Once you file bankruptcy and you still run into financial problems, you will have few options to rectify matters. For these reasons, it’s important to take financial counseling seriously if you file, and extremely important to discuss filing bankruptcy with a seasoned attorney with experience in handling these matters. A good bankruptcy lawyer can help you turn a negative into a positive life change.