What Is The Cost Of Declaring Bankruptcy And Are There Any Other Options
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
What Is the Cost of Declaring Bankruptcy and Are There Other Options?
Summary
In recent times, many people are facing financial challenges, especially with widespread layoffs and corporate buyouts. This situation often leads to sudden unemployment and difficulty in finding new employment with comparable pay. As debts pile up with no immediate relief in sight, bankruptcy may seem like a tempting option. Here’s a guide to understanding the costs involved and exploring alternative solutions.
Understanding Bankruptcy
Declaring bankruptcy indicates you cannot meet your legal debt obligations. This process involves a thorough review of your bills and financial habits and can be quite stressful. Additionally, you will need to undergo credit counseling.
In response to many individuals attempting to escape debt, the "Bankruptcy Abuse and Consumer Protection Act," signed into law in 2005, imposed restrictions on who can declare bankruptcy. This act aimed to make bankruptcy filings more challenging and ensure creditors receive some compensation. Key changes include higher filing fees and mandatory credit counseling, pushing many towards Chapter 13 bankruptcy instead of Chapter 7.
Types of Bankruptcy
Chapter 13 Bankruptcy
This involves a "reorganization" of your finances, where you must devise a plan to repay significant portions of your debt over three to five years. Assets might need to be sold, determined by a bankruptcy trustee, to satisfy debts.
Chapter 7 Bankruptcy
Here, you'll undergo a "means test" to evaluate your assets. Items are classified as "exempt" or "non-exempt." Exempt items can be retained, while non-exempt items may be sold or require repayment. Child support and education costs are generally non-exempt.
Bankruptcy Costs
Filing for personal bankruptcy can cost up to $1,500, including legal and filing fees. The exact fees depend on income level and vary by state. If everything is in order, the legal process can take about six months.
After Declaring Bankruptcy
Once bankruptcy is declared, creditors are informed of their standing. Some debts are discharged, while others know what payments to expect. However, your credit rating will be severely impacted, and the bankruptcy will remain on your credit report for a decade.
Exploring Alternative Options
If bankruptcy seems imminent, consider these alternatives:
1. Credit Counseling
Engage with a debt negotiation company to approach creditors and attempt to negotiate better terms. Creditors may be willing to cooperate to avoid receiving nothing if you declare bankruptcy.
2. Loan Renegotiation
Contact your creditors to renegotiate loan terms. Improved terms might offer the financial flexibility needed to navigate through tough times without resorting to bankruptcy.
By exploring these options and understanding the implications of bankruptcy, you can make a more informed decision tailored to your financial circumstances.
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