It is a common misconception that you can only file for bankruptcy only when you have no money or income and are totally broke. Which in a matter of speaking can be said to be the case but technically there are a lot of pre-requisites to be fulfilled.
You might have a regular income but still, can file for bankruptcy. I know it’s surprising to hear that at first but that is true. How?
Well, let’s discuss in detail.
1. Assess your debts against your income:
First of all, you need to look at your financial condition. How much money do you owe to banks in form of loans and credit card dues? If you think that you can barely meet the minimum payment for these loans and cards. It’s time to rethink.
After honestly answering these questions, you can judge for yourself if you need advice from a consultant or not. If you think you do then look for a reputable and reliable financial consultant.
The consultant will evaluate your income as compared to your expenses. Also list your assets including your retirement funds, stocks, bonds, real estate, vehicles, college fund accounts, non-bank account funds and any other liquid assets you have.
Next, the consultant would add up all your expenses, outstanding debts, bills and credit card or loan payments. If your assets turn out to be less than the expenses, then you can file for bankruptcy in order to come out of this stressful financial situation.
2. How to file for Bankruptcy?
To file for bankruptcy you will need to hire a law firm. It is always better to take the action firstly and voluntarily. Instead of the bank initiating the process, file for it yourself.
There are multiple ways of doing that but your lawyer can guide according to your situation.
3. What is the difference between chapter 7 and chapter 13 bankruptcies?
In easy words, chapter 7 bankruptcy which is also referred to as “straight bankruptcy” is the bankruptcy in which all your assets are liquidated to pay off your debts. Meaning your assets are sold to collect cash to pay off your bank loans and credit card payments.
Once you file for this type of bankruptcy, it is marked in your credit report for 10 years. But it is the simplest way of starting over. After payment to your loan companies and banks, you will get a notice of discharge within 4 months.
Although this seems to be a simple and straight case but before opting for this type of bankruptcy, you should realize that in this all your assets are taken over. If you have some property or business or assets that you want to keep then this is not a good option for you. In such cases, you should opt for chapter 13 bankruptcy.
In chapter 13 bankruptcy, you are given a grace period of 5 years to pay off your debts. Your assets are not taken over or disposed of. You get to keep them and are given additional time period to pay your debtors. This is a good option for people who have stable annual income, which can be considered as an assurance of payment of dues.
4. Is bankruptcy a necessary evil?
Declaring bankruptcy can be hard to deal with and very understandable if you try your best to avoid it. Some people feel embarrassed about being known to their friends and family as a bankrupted person. All of this is emotional and stress full, however, sometimes it is required to start a new.
Taking a decision to file for bankruptcy is like pulling off a band-aid. It hurts so you need to make a quick and timely decision to have your fresh start.
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