When people are asked to file for personal bankruptcy, they immediately become hesitant or they would give you a look of surprise as if you asked them for something impossible. Bankruptcy is the term used for the legal process of eliminating or writing off debts under the bankruptcy court. For you to be able to file for bankruptcy, you would have to meet with a trustee once in a while to manage your case.
So how is filing for bankruptcy beneficial?
As mentioned earlier, bankruptcy writes off your debts so that you can have a fresh start. However, this does not mean that all your debts will be written off. In fact, there are debts that you will still have to pay whether or not you file for bankruptcy. An example would be your student loans if you have any, criminal liabilities, debts that could have been filed when you claimed bankruptcy before, and child support. Nonetheless, claiming that you are bankrupt will give you the time and the allowance to recover.
To add to that, a common misconception about bankruptcy is that you will lose all your assets (to pay all your debts) before you are considered bankrupt. This is not the case because there are some options that will help you retain your personal properties. Two options often available – Chapter 7 and Chapter 13.
Chapter 7 is called ‘Liquidation of non-exempt property’. Taken from its name, you are required to liquidate all non-exempt property except for the ones that are considered exempt. There is also a chance that your unsecured loans may be eliminated to the point that your liabilities will be lessened.
On the other hand, Chapter 13 allows you to create a 3-5 year plan on how to repay creditors. Depending on the plan, you don’t have to pay every creditor nor pay them all at once. Payments will be spread within the 3-5 years. Moreover, what’s good about this option is that you don’t have to sacrifice any of your personal assets.
But while declaring bankruptcy seems to be beneficial for a lot of people, this does not save everyone. One reason is that this bankruptcy would be part of your credit report at least for the next 10 years. This implies that getting credit would be harder for you. This also affects your chances of finding a house or paying for utilities. Another reason why it isn’t so good to file bankruptcy is that it severely affects your future even if it gives you a fresh start. A lot of companies are hesitant to hire someone who is bankrupt. There are a lot of connotations regarding someone who is bankrupt and not all companies are keen on taking someone with those connotations.