Financial stressors may be looming rather high for you as you enter 2021. Many people had issues with finding or keeping steady work throughout 2020 and that fact alone has created financial tension for many of us. Add to that both the impact of online impulse shopping, due to our new “at-home” lives thanks to Covid-19 and holiday shopping, your credit may not be in such shiny shape right now. You may be considering filing for bankruptcy to alleviate the financial pressure and debt you have piling up.
The question is though: Is bankruptcy the right choice for you?
This article will cover some of the facts of bankruptcy to help you make the best decision whether to file for bankruptcy or not. Obviously, bankruptcy has a negative connotation but despite its bad reputation, it can be extremely helpful. Consider these points when deciding whether bankruptcy is right for you. It is also extremely important to hire a bankruptcy attorney who can help you navigate this experience, if you choose to file, in the best way possible, covering any and all aspects of your finances to offer you the most protection and best outcome possible in the long run.
1. Did You Know Not All Debts Can Be Included in Your Bankruptcy?
Some debts are what they call dischargeable: debts that can be wiped out by bankruptcy and you won’t have to pay them off. Creditors cannot try to collect these debts.
These often include:
- credit card debt
- utility bills that are past-due
- medical bills
- and any personal loans made by a friend or family member
There are some debts that are nondischargeable and cannot be handled through bankruptcy, like:
- child support
- student loans
- taxes or, money borrowed via credit to pay taxes
An attorney can tell you what would be considered dischargeable or not.
2. Did You Know Bankruptcy Is Not Free?
If you choose to file for bankruptcy, it’s not free.
Here are the typical fees you will encounter when filing for bankruptcy:
- Legal fees that run anywhere from $1K to 5K
- Fee to file that usually goes from $300- $400
So, when you make that call to declare bankruptcy, consider the amount of debt that you have that will be dischargeable, versus the cost to file. If you only owe let’s say, $3,000 of credit card debt, it may not be worth the cost for you to file.
Let’s not forget also, the other non-financial costs to your credit like:
- A negative hit on your credit score for about two years; bankruptcy used to really hit your credit harder for years, but times have changed and if you work on building your credit back up right away, your credit won’t be impacted as much as it once was back in the day.
- Potential increased rates on insurance plans like auto or home insurance
3. Is Your Home in Danger of Foreclosure? Bankruptcy May Help
A bankruptcy attorney can help you determine if a bankruptcy may be a good move to prevent losing your home to a foreclosure. A bankruptcy could potentially delay the foreclosure, and save your home. If you have equity in your home, it could be worth it, however, it may also be in your best financial interest to lose the home. These decisions aren’t easy ones to make and that’s why so many people hire a bankruptcy attorney to figure out which will be the best path for their financial future.
4. Could You Pay Your Debt Off in Two Years?
Take a look at the amount of debt you owe that could be considered dischargeable, and determine if you could pay off those debts in two years or not. If you can pay off the debt in that time period, it may be worth it to avoid bankruptcy and the impact to your credit score. Of course, if you cannot pay it off and will be missing payments and struggling, it may be worth it to file.
5. Are You Already Losing Wages?
If creditors are garnishing your wages or taking from your bank account, it may be time to file for bankruptcy, especially if the garnished wages are really preventing you from staying financially afloat. If the garnished wages aren’t impacting you, then it’s possible for you to keep going as is, but just filing for bankruptcy alone can stop garnishments and collections. This can help you gain back some of that money to your monthly income, relieving you of a lot of stress.
The bottom line is filing for bankruptcy is a serious decision and one that should really be made with the help of a bankruptcy attorney. An experienced attorney can help you determine whether bankruptcy is the best decision for your financial future or not. Don’t make such a major decision on your own—especially when your future is at stake.