There is no stress quite as difficult to deal with as financial stress. When you’re drowning in debt and not bringing in enough money to make ends meet, it’s normal to feel at least some degree of panic start to set in. Suddenly all of those “get rich quick” schemes that would have never caught your eye before seem plausible. Make thousands selling information products from Clickbank in 24 hours? Sign you up! Except, no. Wait. Do not sign yourself up.
When you’re in dire financial straits you are susceptible to all starts of scam artists. They start coming out of the woodwork, promising you that they can wipe out all of your debts and fix all of your financial problems with just a few monthly payments of $29.95. Nowhere is this more true than in the field of bankruptcy. Before you jump at the chance to “let” them help you, make sure you understand what bankruptcy actually is, what it means and how it works.
What is Bankruptcy
If you are truly unable to pay off your debts or make payments towards those debts in a way that will satisfy your creditors, you can ask a judge for help. The judge will look at your situation and decide if you should pay all, some, or none of what you owe and how that will be paid or written off.
How it Works
Before you do anything else, talk to a lawyer. Many attorneys will offer initial bankruptcy consultations for free. You’ll go in, complete a worksheet together to find out whether or not you qualify for bankruptcy and which type of filing would best suit your situation. If you decide to hire them, they will help you fill out the paperwork and then they will file that paperwork for you.
It is incredibly important that you not try to navigate the bankruptcy process on your own. Yes, it will cost some money to hire professional help, but it will cost less in the long run than you would wind up owing if you file incorrectly or make other types of mistakes!
Types of Bankruptcy
There are many different types of bankruptcy that a person can declare. Most often, though, personal bankruptcies will file under Chapter 7 or Chapter 13.
Chapter 7 Bankruptcy is often called “liquidation” bankruptcy. When you declare bankruptcy under Chapter 7, you tell the courts what you owe as well as what you own. The court then, often, sells off or “liquidates” your property and assets and uses the money from the sale to pay off creditors as much as possible. Any debt left over after the liquidation process is “written off.”
As many lawyers will point out, filing under Chapter 7 is usually the better way to go because you might be able to eliminate your debt without being required to sell your home, car or other important assets.
Chapter 13 Bankruptcy is the “reorganizing” type of bankruptcy. You will not have to liquidate your property or assets, but you will have to pay back some (or sometimes even all) of your debts. The court will decide how much you have to pay and will give you a time frame for that payment–typically three to five years.
Most of the time, bankruptcy is a fairly straightforward process can be declared and settled within a few weeks or months and for a few hundred dollars. All told, the filing and judgment parts of bankruptcy are probably the easiest part of the declaration process.
By now you probably feel like bankruptcy could be the answer to all of your problems. And, in truth, it might be exactly that. Before you rush to declare, though, it is important that you understand that bankruptcy carries long term consequences. Your credit rating will be adversely affected. You might have trouble doing things like renting an apartment, buying a car, etc for at least a few years. Make sure you understand the consequences of bankruptcy before you declare.
And whatever you do, do not trust anybody who promises to fix everything overnight for a tiny monthly payment. Hire a lawyer and do everything by the book!