Bankruptcy is often misunderstood. While many know that it is a kind of financial resort, but only a few know the specifics.
Does filing for bankruptcy mean you’re out of money? Is informing your creditors that you can’t pay them back enough? Is it a good thing or a bad thing?
More importantly, how do you know if bankruptcy is your only way out?
Well, we’ll be dealing with some of these specifics in this article. Keep reading to learn more.
What does Bankruptcy mean?
For non-specialists, bankruptcy is a financial status that implies that the borrower cannot repay their debts. It is noteworthy that you cannot self-proclaim bankruptcy. Instead, the courts legally grant a bankrupt status.
For individual consumers, there are primarily two types of bankruptcy available – Chapter 7 and Chapter 13.
Chapter 7 V/S Chapter 13
Essentially, both types of bankruptcy offer the same thing – a reasonable settlement for your outstanding debts. However, as you dig in a little deeper, you may be surprised to know that these two are entirely different.
While under Chapter 7 bankruptcy your liquidable assets would be used to clear your outstanding debts, Chapter 13 is more about reorganizing your debts.
You can check out this link https://obryanlawoffices.com/bankruptcy-attorney/types-of-bankruptcy/chapter-13-bankruptcy/ for more information. Nonetheless, Chapter 13 is more about allowing you to get back on your feet and pay off your debts consistently and responsibly.
What does Bankruptcy cover?
As such filing bankruptcy may seem like it can help with any number or type of debts you have. However, sorry to break it to you, that is not entirely true. While bankruptcy does help to deal with unsecured debts, it does not usually help with secured debts or liens.
Some of the common reasons to file bankruptcy include credit card bills, student loans, and other lien-free debts. And some of the debts that it does not cover include car loans, tax debts, and mortgages.
On this note, it is worth mentioning that student loans are at the border, meaning they may or may not be included in your case.
Is it the Right Thing to do?
Now that you have a ballpark idea about what bankruptcy is and what it includes, it should rather be easy for you to figure out if it is the right choice for you. Bankruptcy is sure to help you deal with your outstanding debts, but it need not necessarily help you get rid of them.
You should rather ask yourself a few more questions. Are the debts you’re dealing with covered under bankruptcy? How much filing bankruptcy would affect your personal finances? Would you be able to re-establish your personal finances once it’s all settled? If you have an answer to these questions, you can easily know if bankruptcy is right for you or not.
For instance, if you’re primarily dealing with secured debts such as child support, alimony, mortgage, etc. filing for bankruptcy could benefit you very little.
Likewise, suppose your bankruptcy status would take away your pension plan or your health insurance cover. In that case, it might not be a good decision.
In a nutshell, when you’re filing bankruptcy, you should be well aware of the consequences it can have on your life in the near and distant future. And if the consequences are for the better, then probably going in for bankruptcy can be the best decision you’ll ever make for your financial health.