You never dreamed that this would happen to you. Losing your job was a bitter pill to swallow. Paying for unexpected medical and car repairs bills have maxed out your credit cards. Now it’s hard to pay even the minimum monthly amount. You’ve missed the last two mortgage payments, and the collectors are calling every day.
Some of your friends are recommending that you file for bankruptcy; others tell you that filing will ruin you financially.
If you or a loved one are contemplating bankruptcy, here are a few things to keep in mind:
- You are not alone. More than 520,000 individuals and companies filed for bankruptcy in 2020.
- You need help. Ultimately, filing for bankruptcy is a public admission that you cannot pay your debts.
Which Kind of Bankruptcy Will You Choose?
While there are six types of bankruptcy, most individuals file under Chapter 7 or Chapter 13 of the federal bankruptcy law. Chapter 7, sometimes called “liquidation bankruptcy,” applies mostly to those with little or no disposable income. Most of your assets could be sold off to pay your creditors. Chapter 13, called “reorganization bankruptcy,” typically applies to individuals who have steady income. It allows them to keep most of their assets if they can meet their financial obligations as determined by the courts.
What Happens When You File for Bankruptcy?
- The nasty collection calls will stop immediately. The court grants an “automatic stay,” which prohibits creditors from contacting you or taking actions against you until your bankruptcy is discharged or a repayment plan has been completed.
- A court-appointed “trustee” will oversee your case until it’s discharged and handle all your communications with creditors.
- Many of your debts will be eliminated, including credit card debt, medical bills, personal loans, past utility bills and rent payments, and more. Other debts, like child support payments, federal student loans and tax debt, must still be paid.
- You may be able to keep your home, but under Chapter 7 you may lose many of your personal assets, including automobiles and other personal possessions.
- Your credit score will take a major hit for 10 years or more. You’ll lose all your current credit cards and will find it nearly impossible to secure a loan for a mortgage.
- Your ability to rent a home or to land a new job could be adversely affected.
- You’ll have to pay for court filing fees, bankruptcy trustee fees, credit counseling fees and attorney fees.