When there are no other options for getting your debt down to a level you can manage, bankruptcy can be a last-resort method for clearing your debts and starting over again fresh. And while just about everyone has heard of bankruptcy before, there are a few options that can make a significant difference in people’s long-term financial outlook.
What Exactly Is Bankruptcy?
Bankruptcy is a legal filing and court process that helps individuals and businesses who are in financial distress clear their debts so they can still pay for their essential needs. This process isn’t fast and easy––it can take months and requires an attorney’s assistance.
What Types Of Bankruptcy Options Are There?
There are two options for bankruptcy for individuals––Chapter 7 and Chapter 13 bankruptcy. When most people talk about bankruptcy, Chapter 7 is what they’re referring to, as this is the type that clears your debt completely without needing to pay creditors anything back. The biggest downside to Chapter 7 bankruptcy is that assets are often taken by the courts. Also, student loans can’t be included.
Chapter 13 bankruptcy, on the other hand, simply reorganizes your debts into a payment plan that can last between three and five years. With this option, you’re allowed to keep some of your assets still.
Bankruptcy Pros and Cons
- Creditors must stop any collection efforts, ending harassing calls and letters.
- Complete relief of debt (with Chapter 7)
- More time to pay off debts with reasonable payments (with Chapter 13)
- Rebuild credit with a clean slate
- Though a clean slate, credit scores won’t improve until years after the bankruptcy is finalized
- Some employers may not hire you, such as for a job in the finance industry.
- Homeownership will be challenging because getting a home loan often requires bankruptcy to be fully discharged, sometimes for many years.
- Chapter 7 bankruptcy often results in losing property and assets like homes, cars, and even personal possessions.
- Non-dischargeable debts like student loans and IRS tax debts don’t qualify for bankruptcy, meaning you will have to pay those on top of any Chapter 13 payments.
- Filing for bankruptcy can be emotionally taxing and embarrassing, making it even more challenging to feel motivated at a job that can’t financially support you.
- Chapter 13 bankruptcies have a relatively low success rate—only 37% of 2.6 million people could keep up their Chapter 13 payments from 2007-2014. 51% of these bankruptcies were dismissed, and 12% had to refile for Chapter 7 bankruptcy.
- When bankruptcy payments aren’t maintained, credit scores take a tremendous hit that takes many years to recover from. Also note, once you lose bankruptcy protection by not making the payments, creditors are again able to aggressively pursue collection actions against you.
If you’re considering bankruptcy but aren’t sure if maybe there are better options with less severe consequences, call the debt specialists at Alleviate Financial today and talk to one of our debt resolution experts. You may have other options available besides bankruptcy, such as debt consolidation and debt settlement. Our specialists will help you understand all of your options and help you on the way out of debt without bankruptcy if at all possible.
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When credit card accounts start to reach their limits, your chances of the credit card companies charging you over-the-limit fees, higher interest rates, and late fees increases. Once you default on your credit card accounts, the credit card companies exercise their full power to heap on fees and interest, making it even more likely you’ll be trapped in a downward financial spiral.
Thankfully, the debt relief pros at Alleviate Financial Solutions are equipped with a wealth of knowledge and experience. Our team is wholeheartedly committed to giving our clients industry-leading service that produces unmatched results. We have helped thousands of customers achieve financial stability by settling their debts for less than what they owe, and we look forward to helping you as well!