When considering your financial situation, it is important to know where you stand. Many people find when they are financially distressed; they need to file bankruptcy to start their financial life over again. Bankruptcy and debt consolidation are two different options to help you pay off your debts, and move forward with your life.
Congress amended the Bankruptcy Code in 2005 to help people understand how to manage their finances. Everyone must take a class in credit counseling before they are able to file for bankruptcy. Congress wants people to opt for Chapter 13 bankruptcy as it provides a way to pay back your debts. Some people choose debt consolidation over bankruptcy, but this could be a serious mistake. Here are some things to understand about the different types of bankruptcy, and what is best for you.
What is Chapter 7 Bankruptcy?
The Chapter 7 bankruptcy code will cancel many, or all of your debts. However, Chapter 7 bankruptcy may require you to sell some of your assets and property to pay back your creditors. It can take about six months to file for Chapter 7 bankruptcy. It will cost $335 to file and pay for administrative fees. If your income level shows you could afford a Chapter 13 repayment plan, you will not be allowed to file for Chapter 7 bankruptcy.
What is Chapter 13 Bankruptcy?
With Chapter 13 bankruptcy, you are given a repayment plan by the court. They will assess your monthly income and debts to determine what is affordable. Determining a plan to repay some or all of your debts is beneficial to you and to the creditors. It will remain on your credit report that you declared bankruptcy, but you are demonstrating good faith effort to repay the debts. After the end of your payment plan, the rest of the debts will be discharged.
How Does Chapter 11 Bankruptcy Impact Businesses?
Small businesses often use Chapter 11 bankruptcy to get out of debt. This is an expensive, time- consuming, risky, and complex process for business owners to undergo. Small businesses often declare for bankruptcy, but it is the large corporations that are normally covered in the news when they file for bankruptcy. With Chapter 11, individual business debtors who owe too much money to meet the eligibility from Chapter 13 can find a way to repay the debts through restructuring. With Chapter 11, a company will be able to balance their income and expenses and helps them to continue operating.
What is Debt Consolidation?
What exactly is debt consolidation? Debt consolidation is used by people drowning in credit card debt. It allows you to consolidate all your debts into a monthly payment. The company will then negotiate with lenders to accept a settlement offer. This can end up cutting the amount of money you owe in half. While it sounds like a great idea in theory, the creditors can easily break an agreement. Most of them will not negotiate, causing late payments, interest, and fees to continue growing on your debt burden. A debt settlement process can go on for several years, while Chapter 13 bankruptcy can end in 3-4 years.
How Can I Afford An Attorney?
If you are far behind on your debts, how can you afford to pay an attorney to start the bankruptcy process? With Chapter 7 filing, you will end up paying around $1,500 or more, while Chapter 13 can cost you $3,000 or more, plus the repayment plan. Many people are choosing to file without an attorney as they want to save on these costs. If you choose to file without an attorney, you can end up having your entire case dismissed.
Speak to an attorney to find out how much you will need to pay to work with them. There are some things you can do to save up money for the payments to the attorney. Stop paying all your credit card bills and other debts. Use this money to pay the attorney. If you have luxuries like DirecTV, cancel this service as it can save you hundreds of dollars. Sell a second car to afford the payment to the attorney. This is the easiest way to raise the cash you need to afford an attorney.
Dealing with bankruptcy is not a fun process for anyone. If you are overwhelmed with the amount of debt you currently have, now is a good time to consider speaking to an attorney. Their experience and expertise in the field can give you the help you need to move forward with your finances.