Your family’s spending has, for necessary reasons, surpassed your budget. Food and clothing have depleted your savings, and medical bills have created debt.
You’re now at a financial crossroads. You have some options to think about. One way would be a self-guided approach toward reigning in your spending, slowly digging out of debt, and making financial sacrifices that will get your family back on the financial track. You can also talk with a credit counselor.
A possible new beginning through bankruptcy
But another way would be to consider filing for bankruptcy, which is not an easy choice to make. A bankruptcy will provide you with legal protection against creditors, resolves most debts, prevents the loss of a home, and give you the chance to start all over again.
Once you file for bankruptcy, though, you will experience some uncomfortable things such as a loss of privacy, serious damage to your credit history, loss of assets, and court involvement.
There are two common types of personal bankruptcies: Chapter 7 and Chapter 13. The former involves selling most of your assets to pay creditors, but keeping some of your income and property. In essence, it is a trade-off in which the courts will forgive your debt as long as you provide them with your non-essential assets. A Chapter 7 bankruptcy also will remain on your credit record for up to 10 years.
For Chapter 13, the focus is reorganizing your finances, making monthly payments to a trustee, who distributes the money to creditors. You don’t necessarily pay your debts in full with a Chapter 13 bankruptcy, and those payments may last up to five years.
Some debts survive a bankruptcy
You must understand that a bankruptcy will not will not wipe out all debts. In a Chapter 7 filing, most debts are canceled meaning that you no longer owe creditors. However, other debts survive a bankruptcy filing and you will have to pay them. The list includes:
- Child support
- Spousal maintenance
- Student loans
- Most taxes
Bankruptcy is not the easy way out, and will affect you in many other ways as well. But it is a solution. What’s important is that you make sure that you are comfortable with which decision you choose as long as you are on the road to financial recovery.