Life is expensive. Sometimes things just creep up on us and suddenly we find ourselves in over our heads financially. We find ourselves asking questions each month like “Should I pay rent or pay the credit card bills?”. Suddenly, even our phones seem traitorous as yet another collector rings again. When you find yourself in these situations, you may feel overwhelmed. You may wonder if there is a solution. You have probably heard about bankruptcy and you may be considering it. So, what exactly is it?
Bankruptcy is a legal procedure during which you and the courts agree that you can’t keep up with your financial obligations. The result of this procedure is that you will likely be released from many or most of your debts. However, before you happily snatch up this option, there are some things to consider.
First, it helps to have a realistic understanding of what will be forgiven when you file bankruptcy. Many people hold the unfortunate misunderstanding that bankruptcy is a magic eraser which makes all money problems simply disappear. This just isn’t true. It does make many things disappear. Other debts can be made more manageable with bankruptcy. However, some debts will still remain and you will continue to be responsible for them.
Generally speaking, during bankruptcy you will be released from responsibility for debts such as credits cards, utility payments, medical fees, many unsecured personal loans and bank debts. This means that from the moment you file, you no longer have to pay these obligations. On the other hand, many kinds of debts are not covered. For example, many people struggle under student loan debts. These loans are not covered under bankruptcy. Similarly, you can not avoid child support or spousal maintenance by filing bankruptcy. Also, with any loan tied to a specific item, such as a car or home, creditors will generally have the right to claim that item in order to account for the debts.
During bankruptcy, you may lose many things. For example, any homes or properties you own can be claimed and used to settle debts. Also, any money or items of value won or inherited during bankruptcy are eligible to be claimed and used against your debts. If you own expensive vehicles, recreational vehicles, or boats, these may be claimed as well. Some things, however, are protected. It is understood in bankruptcy that you need to be able to continue making a living so as not to find yourself in financial trouble again. Therefore, your primary vehicle is generally allowed to remain in your possession, assuming it does not exceed a certain value. Also, any items which can be considered “tools of trade” in your career will often be left to you. Finally, you can expect to keep most, if not all, of your furniture and personal belongings.
Bankruptcy is one solution to your financial troubles. Yet it is not the only option. Before filing for bankruptcy, you may also consider a debt agreement in which you make certain payment agreements with your creditors. Or, more simply, you may speak directly to the creditors to see if you can simply rethink your payment timeline. Whichever way you choose, there is a way out of debt.