Bankruptcy allows individuals in heavy debt, and with no chance of paying it back, the possibility to start over and not let the debt ruin their lives. It is a last resort, and should be used only after you have exhausted all other possible credit repair steps. A bankruptcy filing will stay on your credit report for ten years, and shouldn’t be done frivolously. But if your troubles are so severe that you see no other option, it is a possibility you should take advantage of and start over as a new person with a lesson learned.
When asking yourself, “should I file for bankruptcy,” first find out if you have exhausted all other options. If the only way to get rid of your debt is filing for bankruptcy, you should do it. Do not let a mistake or bad circumstances ruin your life. Take this unique opportunity to start over.
When to File for Chapter 7 Bankruptcy
When you have decided to claim bankruptcy, you need to determine what kind of bankruptcy is right for you.
A chapter 7 bankruptcy is sometimes referred to as a straight bankruptcy. You will be required to turn over all non-exempt property, which a trustee will sell, and then divide the money among the creditors. When this is over, your debt will be discharged and you are a free individual.
Since all non-exempt assets, such as real estate, will be repossessed, chapter 7 is most suitable for individuals who have next to no assets to hand over. To qualify for a chapter 7 bankruptcy it is also required that your income is not too high above the state median income.
When to File for Chapter 13 Bankruptcy
The alternative to ordinary individuals is the chapter 13 bankruptcy, also known as reorganization bankruptcy. When declared bankrupt after chapter 13 you will have to pay off your debt over a period of 3 to 5 years. It is therefore required that you have a relatively high, stable income. It is an attractive option for people with valuable non-exempt assets, such as their own home, as they will not be forced to hand assets over.
If an individual has an income too high to be declared bankrupt following chapter 7, the case will sometimes get turned into a chapter 13 bankruptcy case.
Last Resort
You should only file for bankruptcy as a last resort. When there is no other way to pay off your debt and you are in risk of having your life destroyed. The system was designed to do exactly that, to offer people a way to get out of impossible debt.
If you find yourself in this situation, you are most likely to want to file for bankruptcy under chapter 7, but if you need to retain your own home, you can also consider applying for a chapter 13 bankruptcy.