Bankruptcy is a legal process that kicks in when people and businesses are unable to pay their bills. While it gives you a fresh start, bankruptcy should only be used as a last resort. Here are some tips to help guide your decision.
Types of Bankruptcy
The most common type of bankruptcy is Chapter 7. Often called “liquidation bankruptcy,” it involves selling non-exempt assets to pay off creditors. Individual state laws determine which assets are exempt. Chapter 7 is ideal for those who have limited income and few valuable assets.
Chapter 13, known as “reorganization bankruptcy,” allows a payment plan to be crafted to repay debts over three to five years. You can keep your assets while monthly payments are made to creditors.
What Causes Bankruptcy
Overwhelming debt is the primary reason people file for bankruptcy. It’s often triggered by job loss, medical emergencies, divorce or the overuse of credit cards.
Pros and Cons of Bankruptcy
Filing for bankruptcy has financial benefits and drawbacks that must be taken into consideration.
Bankruptcy allows you to keep essential assets while you catch up on payments through a repayment plan. It provides immediate relief and eliminates some eligible debts.
On the flip side, bankruptcy affects your access to future credit and loans for several years. Some debts must still be paid such as student loans and child support. Bankruptcy leads to higher borrowing costs and eats up your time and money.
How to Avoid Bankruptcy
Here are a few habits you can form to help keep you from drowning in debt.
- Create a detailed budget that tracks income, expenses and debt payments.
- Negotiate a repayment plan with creditors.
- Seek professional financial guidance.
Taking action early is the best way to stay out of trouble and begin a path to long-term financial stability. However, if you find yourself in over your head, the Law Office of Todd Kushner and Associates can help. Contact us today to schedule a free consultation.
