After you file for bankruptcy, almost all your unsecured debt disappears. Most personal loans and credit card debt are unsecured, and they will go when you go for the liquidation option. Hence, bankruptcy is a major way out for people who find that their assets and dwindling too fast to cover their growing liabilities. However, the following information includes what to know before filing for bankruptcy.
What to know before filing for bankruptcy
The type of bankruptcy
There are two types of bankruptcy named chapter 13 and chapter 7. The first one is a liquidation bankruptcy since its purpose is to discharge most of the unsecured debt of an entity. This option is the most commonly understood. The second one is the reorganization bankruptcy where an entity is seeking a repayment plan and some accommodative terms. Only people with regular income can access chapter 13 bankruptcy so that they make monthly repayments as per their new plans. Besides the two known types, there is chapter 11 bankruptcy that is also a rebate option, but it only services a select number of creditors. Finally, there is chapter 12 bankruptcy that is available to farmers and anglers. Thus, it is important first to know these types and then evaluate the one that is most suitable for you or the person you are recommending bankruptcy as a solution.
Bankruptcy affects your credit
A bankruptcy filing communicates to your creditors and to the financial industry that you are incapable of paying your debts. Therefore, they will adjust your rating for future borrowing downwards to accommodate the risk that you present them as an undesired borrower. So, on the one hand, you gain because most of your unsecured debt disappear, but you tie yourself to a potential mate that is difficult to get out of once you become financially secure and in need of financing.
You can only discharge some debts
Bankruptcy only works for a select number of debt obligations, and it will not magically solve all your financial needs. When someone declares bankruptcy, they still have to pay taxes that they owe. They will also have to pay child support if they have that obligation. People often consider credit counseling and loan refinancing as temporary solutions for their financial troubles because they understand that bankruptcy effects might be irreversible.
The bankruptcy paperwork is public
There is no way to go bankrupt in private. Every interested person will know that you are bankrupt because the filling is in public. If you happen to have many creditors you owe, then the court will still exercise its power to refuse or award them titles to your remaining finances. Therefore, you might lose the privacy to your finances and still have to pay some of your debts.
What to know before filing for bankruptcy tips offer you a preliminary defense against the repercussions of your choices. Besides that, you will become a subject to the orders of a lawyer, and this implies that you will have attorney fees to cover. These tips let you enter the decision rationally so that you have very little to regret after you decide.