In these troubling times, as more and more consumers struggle to get out of debt and unemployment mounts, it is not uncommon for consumers to turn to the idea of bankruptcy for some relief from their financial burden. If you are considering bankruptcy, you are not alone. Most people realize the reality of our current economic situation demands drastic action, especially as many people are in their second or even third year of being unemployed. That drastic action may be declaring bankruptcy and starting over with a fresh financial record. If you are considering the pros and cons of bankruptcy there are a few things to consider up front.
First, you need to be aware of the fact that bankruptcy won’t erase all of your debt- some things cannot be eradicated by the courts including past-due child support, alimony, student financial aid debt and IRS debt to name just a few. Secondly even with the current economic situation, bankruptcy will affect your credit for the next seven years as it is reported to all three of the national credit bureaus. This can make it harder to buy a home or a car in the future or even impact your ability to rent a home.
Because it is so serious and has long standing consequences, it is really necessary to consult a bankruptcy lawyer before you make any final decisions. A lawyer that specializes in bankruptcy can help you understand what type of bankruptcy will work for you and what types of debts can be discharged and what kinds of debts cannot be discharged. Most consumers declare chapter 7 which essentially means your debts are greater than your assets and whatever assets you do own will be liquidated and the money will be used to pay off as much of your debts as possible. This usually means pennies on the dollar to settle debts and the debts are then discharged. Once a debt is discharged the creditor cannot continue to pursue you for payment or garnish your wages for the back amount owed.
The other most common type of bankruptcy is chapter 13 which is a re payment plan that you work out with the court and your creditors agree to. This can allow you to keep your assets and put everything on a repayment schedule that you can make. The down side to this type of bankruptcy is you cannot miss a payment. If you start to miss payments- even one- you are back to being forced to sell assets and declare a chapter 7. The courts in fact won’t even agree to this type of bankruptcy unless you can show that whatever forces that were in play before that made you miss payments and fall behind on your debt have been resolved such as getting a new job to make up for a lost job.
A bankruptcy lawyer can help you understand your rights and help you ultimately make the best decision on whether or not bankruptcy is the right answer for you.