Facing mounting debt after a job loss can feel like an impossible situation. How are you supposed to make payments when no money is coming in?
Should you declare bankruptcy? Here are some of the pros and cons of bankruptcy so you can make the best decision for your situation.
Bankruptcy basics
Bankruptcy is a legal process that provides debt relief for individuals and businesses. It can be used to discharge unsecured debts, such as credit card bills and medical expenses. It can also be used to reorganize secured debts, such as mortgage payments and car loans. The courts oversee the bankruptcy process. There are two main types of bankruptcy:
- Chapter 7 bankruptcy is the most common type of bankruptcy. It involves the liquidation of assets to pay off debts.
- Chapter 13 bankruptcy is less common, but it may be a better option for certain individuals. It involves reorganizing debts and making manageable payment plans.
What are the advantages of declaring bankruptcy?
- It can give you a fresh start financially. Once you have declared bankruptcy, your debts will be discharged, and you will no longer be legally obligated to pay them back.
- Provides much-needed relief from the stress of unmanageable debt.
- Stops creditors from taking legal action against you, such as garnishing your wages or putting a lien on your property.
Are there any disadvantages to bankruptcy?
- It will negatively impact your credit score for years, making it difficult to get approved for loans or credit cards.
- Certain types of debts (such as student loans) cannot usually be discharged through bankruptcy.
Bankruptcy can be a complicated and stressful process, so it’s crucial to get the right guidance. Work with someone who can help you understand your options and make the best decision for your unique situation.
