Bankruptcy is something most of us would prefer never to have to learn more about, much less go through. Unfortunately, if you’re at the end of your financial rope then you may not have any other options, and if that’s true in your case, then you owe to yourself to know as much about it before you start the process.
We’re here today to give you a basic primer on bankruptcy, and maybe give you a little hope that you can reach the other side of it intact.
Before we deal with the downsides of bankruptcy, it’s worth taking a minute to talk about its upsides. The foremost of which is that filing for bankruptcy will wipe away your debt (most debt, that is. Bankruptcy doesn’t wipe away student loan debt or back taxes). It’ll leave you with a clean slate to make new financial decisions and take charge of your money. Not only will you no longer have debt hanging over your head, it will also save you money month to month in interest payments.
Up until we’ve talked about bankruptcy generally, but there are two primary types of bankruptcy you can file for: chapter 7, and chapter 13. Chapter 7 wipes away your debt, but it also means you’ll be assigned a trustee to aportion out your financial assets to the creditors you owe. Generally speaking a trustee won’t leave you destitute and homeless, but you will lose control of your assets.
Chapter 13 doesn’t so much wipe away your debt as restructure it into a repayment schedule. It’s not as easy to qualify for as chapter 7 as you need to prove you earn above a certain amount. It has distinct advantages and disadvantages over chapter 7 bankruptcy, and which is right for you just depends on your situation.
As mentioned above, not only will chapter 7 bankruptcy potentially strip you of a lot of your possessions, but both types of bankruptcy will hurt your credit score and remain visible to credit card and signature loan companies for seven to ten years. The effects of having a low credit score are legion: you most likely won’t be approved for credit cards or loans, and the interest rate if you are will be sky high.
The good news is that so long as you make solid financial decisions you can often be eligible for new loans and interest rates before the ten year mark. But without access to credit cards or signature loans that can be a difficult and uphill battle for a lot of people. For that reason the decision of whether to file for bankruptcy is not one to take lightly.