It hits the headlines with a lot of negativity, yet bankruptcy can actually be hugely beneficial to some people. If you’ve racked up debt after debt, and simply don’t have any means to pay them off, there are occasions where turning to the dreaded B-word might be in your best interests.
Of course, let’s not beat around the bush – if you can avoid this course of action, you should do whatever it takes to do this. While this article isn’t going to delve into the various disadvantages associated with the practice, what we will say is that they do exist and you should be fully aware of them before proceeding.
If you are quite adamant that it could be a direction you have to take, read the following four points to see just how it might affect you.
Are you eligible for bankruptcy?
There is no black and white answer to this question and it will simply relate to whether or not you have opted for a Chapter 7 or Chapter 13 bankruptcy. The former is when the majority of your debts are cancelled outright in a process lasting up to six months. The latter meanwhile is a more flexible approach, where your income is used to make payments on your debts over the course of the next few years. Naturally, if you already have a decent income, you are not going to be permitted to take out a Chapter 7 bankruptcy. However, this might be deemed the most appropriate type if it is found that your debts are simply too high to be covered by a repayment plan.
Which of your debts will be cancelled?
Again, this will largely depend on the type of bankruptcy you have opted for. However, we should point out that certain debts like child support obligations are not covered by bankruptcy and you will still be required to pay them.
What property will you get to keep?
Another issue which bankruptcy can’t help with is a mortgage debt. The general theory is that as your other debts will be cancelled, it will become much easier to pay your mortgage off. Each bankruptcy carries different exemptions although a lot of the time, the conditions will mean that you’ll have to forfeit a lot of the equity you already have in your home.
In relation to your other property, this is again dependant on a number of factors. It mostly depends on your exemption laws, and whether you have placed this property as collateral in any debts you have.
What about the future?
Not for the first time through this article, this again depends on what chapter your bankruptcy has been taken from. However, you should also take into account that this is going to be an extremely public affair, and most of your closest friends and family are going to have sound knowledge of your financial misgivings. As such, as well as having to potentially ask permission to spend your own money, you will have to prepare to cope with the emotional repercussions.