Everything You Need to Know About Declaring Bankruptcy

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Everything You Need to Know About Declaring Bankruptcy

When it comes to people’s perceptions of declaring bankruptcy, we are almost a nation divided. Some people see bankruptcy as the solution to all of their money woes and almost look upon it as a way to wipe the slate clean, whereas others are terrified at the prospect of it and regard having to consider bankruptcy as the ultimate sign that they have failed. The fact of the matter is, as a nation, very few of us completely understand the process for declaring bankruptcy.

When to Consider Bankruptcy

If you are finding yourself drowning in a sea of debt and you feel that keeping up with payments or making a dent in the amount that you owe is a virtual impossibility then it may be time to start considering declaring bankruptcy. Declaring bankruptcy is not a five minute process and it will stick on your credit rating for several years to come but it is worthwhile if your finances are otherwise affecting your mental health and causing stress.

Ensure That You Are Eligible to Declare Bankruptcy

Struggling with the repayment of debt does not necessarily always mean eligibility for declaring bankruptcy. In fact, some debts cannot be wiped out in this manner – including back taxes, student loans, and child support. In these instances, you will have to look for alternative methods of repaying your debtors.

Bankruptcy Should Be a Last Resort

Before you get too up in arms about your financial situation and get upset that bankruptcy is your only way out, make sure that you have thought the situation through thoroughly. Are you sure bankruptcy is the only option? Is there any way that you could consolidate debts into one place to make them more manageable? Are there other aspects of your typical expenses that could be modified to make way for more repayments? A credit counselor can help you review your options before you make the leap.

Understand That the Process is Complex

Filing for bankruptcy means opening your finances up for public scrutiny. All details of your financial life – debts, missed payments, assets and incomes will be reviewed. Part of the process of declaring bankruptcy is attending a meeting of creditors where you will be asked various questions about your finances in an almost interrogative manner.

Filing For Bankruptcy Can Be Expensive

Although bankruptcy occurs if you are in a state of extreme financial difficulty, the process of applying for it is relatively expensive. Hiring a bankruptcy attorney can make the stress of the process much easier but their services can range in price from hundreds of dollars to thousands of dollars. Even if you opt to declare your bankruptcy independently then you should be prepared for the fact that the filing fees alone can equate to several hundred dollars.

Bankruptcy Forms Are Complicated

Bankruptcy forms are far more complex than simple “tick the box” affairs and it isn’t just a matter of listing your debts and explaining that you want them to be taken away from you. Imagine a super confusing tax return form, multiply it’s complexity by ten and you have a bankruptcy form.

A bankruptcy attorney can help you to navigate through this mindful. It’s important to remember that complete disclosure and honesty is required. If you don’t list all of your assets or you exaggerate your situation, you could be jailed or investigated by the FBI.

If You Get Discharged, Your Debt Doesn’t Necessarily Go Away

This isn’t to scare you but to ensure that you are informed about all aspects of the bankruptcy declaration process before you start hiring attorneys and filing forms. If a bankruptcy is filed in your favour, that purely means that your lenders can no longer chase you for the debt, not that the debt is completely eliminated. For example, if you have cosigned a loan, a mortgage, or something else with another person then the lenders will still go after that other individual and if they fail to pay then their assets are at risk.

Bankruptcy Stays on Your File For Years

The average occurrence of negative credit will stay on a person’s credit file for 7 years, however a bankruptcy filing can remain for much longer. Your success in obtaining credit following bankruptcy will vary depending on the lender in question. Some will shut your application down completely and consider you as too risky, others will be happy to loan you money at the price of a painfully high premium or interest rate.

Think About the Impact of Bankruptcy On Your Professional Career

The impact that declaring bankruptcy has on your credit file is one thing but the fact that it can impact other aspects of your life should not be overlooked. As an example, you may find it difficult to get insurance if you have bankruptcy on your file, or you may have difficulty applying for a job. If you are considering a job role that requires a high security clearance (ie in working for the government), you may be turned down because of your bankruptcy since your financial history will be a factor for consideration.