Hounded by debt collectors. Using loans to pay loans. Those are among the signs that filing for bankruptcy might be the answer to your money problems.
Filing for bankruptcy is a United States government-protected path for individuals and businesses who owe more money than the net worth of their assets.
Bankruptcy is a legal process overseen by federal bankruptcy courts. It's designed to help individuals and businesses eliminate all or part of their debt or to help them repay a portion of what they owe, according to Experian, a consumer credit reporting agency.
Bankruptcy offers some relief but with its own financial harm, according to KAKE-TV, an ABC affiliate in Wichita, Kansas.
Downsides of filing for bankruptcy include:
- Stained credit report for seven to 10 years
- Difficulty in getting credit cards and loans with good interest rates
- Employers unwilling to hire those with bad credit
- Difficulty in getting tenant applications approved
Still, in some cases, bankruptcy is the answer. For example:
Debt Collectors
The understanding upon taking out a loan is that payments will be made on a schedule until the loan is paid off. If payments are missed and the result of the loan is a default — failure to repay — the lender will hire debt collectors to hunt you down.
Dealing with debt collectors can be hell. Relentless, they will call every other minute and harass you in other ways to get payments.
Such a pummeling might be a sign to get bankruptcy protection. A Chapter 13 bankruptcy, for example, will allow for negotiation of a payment plan to fit a particular financial plight.
Using Loans for Loans
Borrowing money to pay off loans is a cycle of loss that rarely succeeds. Most people are stuck in the loop for years, losing money in charges and interest rates.
Instead, in filing for bankruptcy, some of the loans could be discharged.
Risk of Home Loss
If the financial risk has reached the point of losing your home, your prized asset, then filing for bankruptcy might be the best way to keep it in your hands.
There are two situations under which you could lose your home.
One, if you take out a mortgage and default, your lender will initiate foreclosure after about three months.
Two, if you own your home outright but use it as collateral in a loan, the lender can initiate a repossession if you default.
Under Chapter 13 bankruptcy, you’ll have the opportunity to work out a payment plan with lenders. That means you can keep the house, even if foreclosure or repossession had begun.
Digging into Your Retirement
Retirement savings are so you can maintain a certain quality of life in later years.
Those who find themselves withdrawing from retirement savings to pay off debt should probably explore bankruptcy as a better option. There’s no value in undoing years worth of savings because of a debt that could be discharged in a bankruptcy.
You May Be Eligible, But…
Inability to pay debts doesn’t necessarily mean the court will approve a bankruptcy application.
For a Chapter 7, monthly income must be lower than the official median monthly income in the applicant’s state.
For a Chapter 13, disposable income must suffice to cover a new payment plan. Secured debt (such as a mortgage backed by a home) and unsecured debt (such as debt on credit cards) can’t exceed set amounts.
Contact Benjamin R. Matthews & Associates Bankruptcy & Estate Law in South Carolina today for help with your bankruptcy questions.