- Category: Bankruptcy
- Published: Friday, 08 January 2016 14:45
- Written by CBC
- Hits: 693
There are several reasons why personal bankruptcy continues to increase significantly each year. So many Americans carry a lot of debt, reaching close to $2 million each year. Home equity lines of credit, personal loans, mortgages, auto loans and credit cards are easily available to Americans, no matter if the interest rate is high or low. Unemployment and divorce are also going to be an issue for some people – unable to manage the financial stress that all of this brings. For that reason, bankruptcy may be the only option for some of these people.
The government offers consumers a way out of debt and protection from creditors. If you are unable to pay your debt and it is getting out of hand, you may be able to file bankruptcy. However, for those with tax liens, child support, student loans and penalties assessed by the court system, bankruptcy is not an option. However, bankruptcy protection is open for personal loans and credit card debts, but only recommended if you are experiencing financial hardship.
Bankruptcy protection has certainly evolved to include various forms. These include Chapter 7, Chapter 11 and Chapter 13. Chapter 8 and Chapter 12 also exist, but specifically for family fishermen and farmers. Business owners have their own bankruptcy programs. However, the most popular and traditional choice exist mostly for consumers. In Chapter 7 bankruptcy, consumers can liquidate their applicable debts. Chapter 11 bankruptcy helps to restructure the consumer’s debt, reducing the balances and working out a payment plan of up to five years. Chapter 13 is also quite similar to Chapter 11 where a payment plan is a part of the deal.
Things to Consider
If you do feel the need to file bankruptcy, you have to be aware that this will stay on your credit report for years to come. In fact, Chapter 7 stays on your credit report for 10 years after it is discharged. You must bear this in mind before you make the decision to file bankruptcy. You may be able to acquire credit afterwards, but at a higher interest rate. Your FICO scores will also be reduced. Bankruptcy greatly impacts your life, even when looking for a job.
Currently, consumers have to complete a paid class on debt management and credit prior to filing for bankruptcy. When filing bankruptcy, you have to also create an inventory list of what you own and unfortunately, the federal government determines the potential value of your assets. Your possession can be confiscated by the government to repay your debt, depending on the type of bankruptcy filed. So should you avoid filing bankruptcy?
It took years to accumulate your debt and it may be apparent that your spending habit is way out of control. Therefore, bankruptcy can be avoided, if you make changes to your financial lifestyle. You may have to see a debt consolidation consultant where you will receive financial counseling and help to work on your debt and finances. You will be forced to look at your income and expense to see that you are unable to afford the lifestyle that you once had. It is best to seek other alternatives before filing bankruptcy.