When you file bankruptcy, you declare that you’re unable to repay your debts. The bankruptcy court might eliminate your obligation to pay back those debts (Chapter 7) or it may work out a 3-5 year repayment plan with your creditors (Chapter 13). Filing bankruptcy isn’t a decision that should be rushed into. Bankruptcy will have long lasting effects on your credit and your ability to get credit cards and loans in the future. Once you file bankruptcy, the filing will remain on your credit report for 7-10 years, long after your obligations to that debt have been fulfilled or eliminated. You should consider bankruptcy only if your credit is already in bad shape and cannot be saved. If your accounts are current, or if only a few of them are past due, seek other alternatives before filing bankruptcy.
Start by calling your creditors and negotiating more favorable repayment terms. Let them know you are facing financial hardship and have difficulty making your payments. Ask for a reduction in your minimum payment and interest rate. Call each one of your creditors and negotiate more favorable terms. Don’t stop if the first one or two turn you down, others on the list may be more willing to work with you. Ask your lenders for temporary forbearance or interest-only payments for a period of time. This will reduce your monthly payments making it easier to meet your financial obligations. Note that any unpaid interest that accrues might be added onto your loan balance at the end of the forbearance period.
Seek consumer credit counseling. If you’re unable to negotiate a payment plan with your creditors, a consumer credit counselor might be better able to work with your creditors. A credit counselor can also review your budget and find ways that you can save money. If you have valuable assets, you might sell them and use the proceeds to help pay your debts. You can auction the item on eBay.com or place a free classified ad for it on Craigslist.org. Let friends and family know what you have for sale and ask them to spread the word.
You can also use any savings you have to pay off the debt. You might be hesitant to use money that you’ve saved up, but if it will allow you to preserve your credit, spending the money is a better option.
How Can Bankruptcy Help
Bankruptcy can keep your wages from being garnished. So, if you’re facing a garnishment or you’re already having money taken from your wages, bankruptcy can remove the garnishment. Similarly, filing bankruptcy keeps creditors from obtaining a judgment against you. If you’ve received a lawsuit summons, consult with an attorney to find out how bankruptcy can protect you. Most people file bankruptcy because they have overwhelming medical bills that they’re simply unable to pay. Often, these people have medical insurance; the expenses simply were not covered. Bankruptcy can release you from the burden of heavy medical debt.
Seek Legal Counsel Before Filing
The advice given in this article is for informational purposes and is not legal advice. Only a licensed bankruptcy attorney can give you legal information about filing bankruptcy. Before you file, seek legal counsel for a complete description of your options for dealing with your debt.