Most of us don’t want to think about the possibility of filing for bankruptcy. However, there are times when it’s the only option. If your finances have degenerated to the point that bankruptcy is your only option, you need to start to prepare. Here’s what you need to know.
Know Which Type to File
There are two main types of protection for which most individuals can file:
Both types of bankruptcy have to be approved by a judge. Due to recent laws, it’s harder than before to file for Chapter 7, and there are penalties for requesting it if you don’t qualify. Today, it usually makes more sense to apply for Chapter 13 protection and work out a payment plan. Consider all of this in your deliberations so that you are prepared.
Understand Which Assets are Protected
There are some assets that are protected during this process. You usually don’t have to tap your retirement account, and in most states creditors can’t come after your home (as long as you are current on your mortgage payments) as part of these court proceedings. Before you take the rash step of liquidating all of your assets, consult with a knowledgeable attorney to find out which are likely to be protected so that you don’t put your future at risk. You’ll need something to build on after the proceedings are finished.
Be Prepared for the Credit Impact
Many consumers aren’t fully prepared for the long-term impact of a bankruptcy on credit. Filing can devastate your credit score. Additionally, even after you start rebuilding your financial life, your filing can show up on your credit report for seven to 10 years (depending on the type of filing). Your lower score and the bankruptcy’s impact can make it difficult to get loans in the future – especially mortgages. You might also pay higher rates on the loans you do qualify for and you might be required to make higher security deposits.
Your filing can cost you extra money for years after the situation has been resolved. Before you file, it’s important to weigh the options and consider the consequences. It’s a decision that shouldn’t be made quickly or lightly, and because requirements are different in each state, it’s a good idea to consult a knowledgeable attorney before proceeding as well as seek pre-filing credit counseling.
Before getting overwhelmed at the thought of bankruptcy, reach out to one of the counselors at CESI Solutions to help educate you on your options, today.
Image Source: Pixabay
Consumer Education Services, Inc. (CESI) is a non-profit service provider of comprehensive personal financial education and solutions for all life stages and for all of life’s milestones. Our goal is enhanced economic security for everyone we serve.
CESI is NOT A LOAN COMPANY