Bankruptcy
Bankruptcy: no one wants to file for bankruptcy. But sometimes, when bills have gotten completely out of control, or your finances have suddenly taken a major turn for the worse, bankruptcy can become the only option.
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Traditionally, personal bankruptcy has been a desperate last resort for those so deeply in debt and harried by creditors, that there really seemed to be no other solution, but bankruptcy. The typical profile included low-income, under-educated clerical workers or laborers, or perhaps transient non-homeowners. Common age groups were those who were in their twenties, or those over sixty five years of age.
This is no longer the case. Today's bankruptcy profile includes people with good jobs, even families with two incomes. It is not surprising to find those with six-figure incomes declaring bankruptcy. The process comes no longer out of a dire necessity, but it is now a means by which people can rid themselves of debts that cramp their lifestyle.
With a bankruptcy, the slate of your debts is wiped clean. Whatever you can afford to pay toward your outstanding debt, you pay, then the rest is discharged. However, because this means many of your creditors receive only a portion of what you actually owe, bankruptcy puts a long-term stain on your credit rating. It takes about seven years for records of a declared bankruptcy to be removed from your credit reports. During this time, it's difficult if not impossible to acquire additional credit. This includes credit cards, mortgages, car loans - everything that makes major purchases manageable for most people.
Chapter 7 bankruptcy makes no reference at all to the debtor's income. It permits debtors to clear the slate by turning over all their assets except those specifically exempted to creditors. Among the exemptions: Up to $7,500.00 equity in the debtor's house (15,000 if both file); $4,000.00 in accrued dividends; $1,200.00 in automobile equity; $500.00 in jewelry; $200 per category of household items (including clothing, books, etc.) and more!
Chapter 13 bankruptcy requires that debtors show only a regular income to handle a reasonable three-year pay-back plan. The court's definition of reasonable happens to be as little as 1% to 10%, even when a payment of 50% could easily be managed.
If you do find yourself looking at the possibility of declaring bankruptcy, you might want to first consult with a professional financial planner to investigate alternatives. A finance professional might be able to help you find a way to make arrangements with your creditors that will keep you from having to take that final step into declaring bankruptcy. Making alternate arrangements with creditors could still have a detrimental effect on your credit rating, but not as extreme as that from declaring bankruptcy.
Negotiating directly with your creditors might seem intimidating, but it can be the best way to steer clear of bankruptcy. If you feel uncomfortable, though, or unsure how to begin, a professional financial planner can help get the process going for you. With this assistance, you might be able to arrange a settlement with your creditors that's more beneficial to you than what you might have been able to negotiate on your own.
A financial professional also might be able to provide other innovative options to help you avoid filing for bankruptcy. So, before you take this irreversible step, be sure you've pursued all possible avenues to salvage your finances.
If you do decide to
file for bankruptcy, a financial professional can help you sort out your finances to keep from falling into debt again. They can also help you pursue measures to build your credit back up so that you can once again take advantage of the ability to borrow money for major purchases.
While in the short run, a bankruptcy might seem like a catastrophe, in the long run it can be overcome, and, with the help of a financial professional, you can work your way back into good standing with the credit bureaus and back onto firmer financial ground.
