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How Bankruptcy Works & When it’s a Good Idea

Bankruptcy offers a way out of debt by either eliminating it or repaying part of it. The decision on whether or not to file for bankruptcy is however not an easy one. You may end up losing most of your assets or none at all. At the same time some debts are not covered by bankruptcy. To help you in making the right decision let’s look at how bankruptcy works and when it’s a good idea to file for one.

Which Debts are Discharged by Bankruptcy?

Filing for BankruptcyBefore filing you have to decide on the type of personal bankruptcy that is unique to you financial situation. The process covers consumer debts such as credit cards, personal loans, mortgages and medical debts. Non consumer debts cannot be forgiven through personal bankruptcy. These include alimony, taxes, child support, and criminal restitutions.

It’s advisable to have a bankruptcy attorney go through your finances to ascertain which debts qualify as consumer debts and which ones do not. For example, a student loan can be either depending on how it was used.

 

Types of Personal Bankruptcies

In the United States a person can file for either one of the following personal bankruptcies;

Chapter 7 is also known as liquidation bankruptcy. It involves sale of assets that are not protected by bankruptcy and the distributions of the proceeds to creditors. The proceeds can cover your debts in as little as 3 months. Chapter 7 bankruptcy will be ideal if you don’t have a lot of assets that need protection.

Chapter 13 is also referred to as a debt repayment or reorganization. It’s ideal for debtors who have many or valuable assets and don’t want to lose them. Basically the debtor tables a proposal that shows how he/she plans to clear amounts owed within a given time frame. One gets the chance to clear all debts either partially or in full. You can also have others dismissed entirely.

Your attorney does a “means test” to determine which bankruptcy you are eligible for. In a nutshell, you may not be eligible for Chapter 7 if it’s evident that your income can settle debts under Chapter 13. Similarly, a Chapter 13 bankruptcy may be denied if your debts are too high in comparison to your income.

When is Bankruptcy a Good Idea

When is Bankruptcy a Good IdeaBeing eligible for bankruptcy doesn’t necessarily mean that you need to file for one. It could be that all you need is a little professional advice on how to manage your finances.

You also have to contend with the fact that bankruptcy stays on your credit report for seven to ten years. That said, there are some circumstances that call for bankruptcy;

#1 When debt management programs don’t work

Credit counseling is a service offered by most financial advisors and organizations. You may be advised on how to reduce personal expenses in order to free more of your income to clear debts. Other measures include renegotiating terms with credit companies or other creditors.

When debt management fails, whether it’s due to non commitment on your part or refusal by creditors, then bankruptcy could be your only way out.

#2 When you are being sued

A lawsuit filed by creditors can be tricky when you have no means of repaying and remaining liquid. The judgment could lead to sale of assets or foreclosure on your properties. When faced with such eventualities, filing for bankruptcy could be the only way for you to remain afloat. The process offers you the chance to retain some of your property that would otherwise be auctioned.

#3 When faced with overwhelming medical bills

Most financial woes result from making wrong decisions on investments and credit lines. You may however find yourself faced with bills that are not of your own making. Such include medical bills that are not covered by insurance and are beyond your financial reach. In such circumstances, filing for bankruptcy is advisable; the bill will be discharged without over-tasking your income or your family’s finances.

#4 Insolvency Due to Industry Crisis

More often than not you will find yourself contemplating mortgage as an investment. When the industry is in a boom, then you are all set to make a profit on resale in the foreseeable future; that is however not always the case. Upward adjustments on mortgage repayments can leave you deep in debt. Filing for bankruptcy could be the only way of salvaging your property from mortgage lenders.

The take away

Bankruptcy is a federal court-protected financial tool that gives you a “fresh start” from debt burden. The process becomes part of your credit report for 7-10 years. It can also lead to loss of assets hence should be done as a final result. If you are facing foreclosure, hefty medical bills or a creditor’s lawsuit then filing for bankruptcy could be your only way out. The above information gives you an overview on how to go about it.

Related Article: Life After Bankruptcy

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Ulysses Martinez
Ulysses Martinez
21:06 05 Jun 20
Credit Absolate is helping me get my credit score up. They have done by far a fantastic job. I couldn't be more happy with the experience and the customer experience is phenomenal as if your part of the family. They make sure you understand your credit usage and the educational videos are very clear. They are changing my life around. Just being with them for 2 months I got my score from poor to fair and dropped of some accounts from my cresit report. I cant thank them enough. Truly a success story
Angel  Maldonado
Angel Maldonado
14:27 30 May 20
They are amazing! Not just Derk but the whole team is great. The videos they provide are so helpful. They just don't help you improve your credit score, they also teach you how to manage your credit score. If you have bad credit contact them 1st before you even start trying to fix your credit on your own!!!
Keith Russell
Keith Russell
23:40 29 May 20
Easy to work with. Very fact based and focus on teaching me how the credit scoring system really works. My credit score increased by 100 points. Best investment in my credit worthiness. Great customer service, this is the real deal.
Fanisha Vela
Fanisha Vela
16:05 05 May 20
This is a wonderful team to work with. They have made the process so easy and efficient. Results seen within the first round of action!
Brandon Dickinson
Brandon Dickinson
01:04 26 Mar 20
What an awesome team. They work hard and get things done. My credit has jumped amazingly and the coaching videos are very informative to every detail. Would recommend this company to anyone looking to better their credit.
Bre Udave
Bre Udave
22:59 04 Mar 20
this has been one of the best experiences i've had working with a company! i am very happy with my success thus far and everyone (especially Leslie) has been so helpful with everything! If you're looking to fix your credit, stop searching and use this company!!
Steven Lasseson
Steven Lasseson
14:51 28 Feb 20
I've tried a few other credit repair companies and Credit Absolute has provided the best service I've come across. In just over a year, they were able to get numerous items removed from my credit report. The process is simple, the staff is easy to work with, and the results are everything you'd hope for. If you are looking for help in your journey to financial freedom, do yourself a favor and give Credit Absolute a call.
Kade Deeyor
Kade Deeyor
21:51 19 Feb 20
Credit Absolute has been a huge help for me. Since the beginning I’ve seen an enormous increase in my credit score. Felicia and Leslie are especially helpful, concise, and very informative. They both always get back to me within minutes if I have any questions or concerns. I would highly recommend Credit Absolute to anyone seeking a better understanding of how Credit Scores actually work or if you’re looking to increase your scores.
Phuong Mai Pham
Phuong Mai Pham
17:56 13 Feb 20
Credit absolute has helped me tremendously over the past few months. My scores for all 3 credit bureaus have increased by 50+ points. I appreciate the education on credit. I am now much more knowledgeable and strategic about when I should and should not use my credit cards. I look forward to my progress as my goal is to purchase a home by the end of the year!
Doug Donaldson
Doug Donaldson
06:13 21 Dec 19
I noticed a few changes on my credit report that had lowered my score which concerned me and after looking at reviews online I decided to set an appointment with Derek at Credit Absolute. I was fully expecting to spend hundreds of dollars for his advice on what I should do to get it back up to where I had it. After consulting with him and looking in depth at my report, he gave me some tips and helped me understand how the 3 bureaus work and what I could do to increase my score. Best of all..... he didn't charge me a penny. Derek is an honest guy, running an honest business, and if you are looking to build your credit score then he is the guy to turn to. It was about a year ago that I met with him and my score is up over 90 points. 10/10 would recommend Derek at Credit Absolute!
Ashley Krolak
Ashley Krolak
21:58 25 Nov 19
Thank you to entire team at Credit Absolute! We have accomplished so much in a short amount of time. They have helped my whole family increase our scores. They are organized, helpful and get the job done all while teaching you helpful hints along the way. I highly recommend this company for any credit needs.
dan uyematsud
dan uyematsud
21:29 13 Nov 19
Simply the BEST!!!!!!! Derick, Felicia and Becky are extremely good at their job. They work very hard to teach one how to improve their credit as they work very hard on their end to build your credit. I am very pleased as I see my credit score increasing in a short period of time.Thank you again, Dan U
nestor victore
nestor victore
22:14 04 Nov 19
You guys have done an amazing job, I'm very happy with my score has improved over 100 points. I'm happy with you guys services and help, thanks.
Tina Abbott
Tina Abbott
02:07 01 Nov 19
My experience with Credit Absolute has been nothing but wonderful! The entire staff are very knowledgeable and understanding. Felica is the one of the nicest people.
Christopher Moore
Christopher Moore
15:10 03 Oct 19
Communication with Derick and the team couldn't be better. I spoke directly to Derick and he was upfront, honest and didn't waste time. I would certainly recommend Credit Absolute to anyone who is looking into credit repair. They'll give you an honest overview of where you are and what they can do to help you reach your goals!
David Burgess
David Burgess
19:02 20 Aug 19
Derick and his team have been extremely helpful and informative throughout this entire process. I would recommend to anyone who wants/needs to repair credit quickly! Worth more than the money without question!
steve moore
steve moore
23:32 16 Aug 19
Derick and his team were awesome! I would highly recommend their services if you are looking to refurbish your credit score!!! +A all around for his team and the willingness to help me out !
Zacary Roberts
Zacary Roberts
03:00 26 Jul 19
Felicia helped me out so much, the company is professional l, but they treat you like your their only client. They are thorough and honest and my credit score has gone up remarkably ever since I started working with them. Thank you so much!
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Chris Gunn
18:50 25 Jul 19
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Christy Russell
Christy Russell
15:37 25 Jul 19
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Christian Wunder
Christian Wunder
19:35 18 Jul 19
They have been great to work with. Going on 3 months now and my score has taken a huge jump. I've had items removed from my credit and every month we go over our strategy to maximize the improvements. Highly recommend :)
Baron Adelmann
Baron Adelmann
21:59 26 Oct 17
Derick and his team have helped me tremendously! He explains the process of improving your credit and does all of the work for you! My credit score has improved drastically and I know that I couldn't have done it without the help of Credit Absolute. Because of them, my business has continued to thrive in a way I never thought possible. Thank you Derick and the Credit Absolute Team!
Gabriela Lovelace
Gabriela Lovelace
23:17 30 Jun 17
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Sho Sho Smith
22:31 16 Feb 17
Derek just made my day when I thought my credit was being compromised due to a balance on my late husband's credit card. He checked it out my credit health and assured me that I lost no points and the balance was forgiven. Great news! He gave me pointers on how to get my credit score even higher to put me into the premium level and coached me on getting back on my feet, credit-wise, after my husband's death. A great experience!
Vanity Hernandez
Vanity Hernandez
20:15 19 Jul 16
I was referred to Derick when my credit score dropped 3 points as I was in the process of trying to get a mortgage loan. Derick gave me GREAT advise and also helped confirm all the credit myths I have overheard on how to improve your credit score. Not only did he give me advise, he not once tried to have me hire him like others usually do. Derick was genuine and that's hard to come across with business. :)
Ian Farruggio
Ian Farruggio
19:29 05 Jul 16
Derek was completely professional and offered helpful suggestions to help me improve my credit. He was honest, in that his services were really not needed and helped to point me in the right direction free of charge. If you have any questions regarding your credit, this is the only place to go!!!
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