If you’ve fallen into debt, you may be wondering if bankruptcy is the right move for your situation. There are circumstances where bankruptcy can help you eliminate debt and get back on your feet with only minor consequences. Sometimes, you can come out of bankruptcy in better shape than when you went into it.
Should you go into bankruptcy? That depends on your personal situation. You may be considering Chapter 7 bankruptcy, which focuses on liquidating your assets, or you could consider Chapter 13, which allows you to have a payment plan. The goal of any kind of bankruptcy is to eliminate debt, so your income-to-debt ratio can be improved. With this process, you’ll eventually be able to pay off or eliminate debt, allowing you financial freedom.
One reason considering bankruptcy is good is if you make a decent income but find your debt isn’t decreasing, even though you’re paying your minimum payments. Credit card debt can grow quickly, and when your paychecks are maxed out while trying to pay the minimum payments, bankruptcy is an option. Chapter 7 bankruptcy would allow you to sell off items to pay the debt and to start over. Chapter 13 would let you establish a payment plan that you can afford over the next three to five years.
With a Chapter 7 bankruptcy, your debt is eliminated in around three months, but that strictly depends on your particular case and what you can afford to liquidate. You typically have bankruptcy exemptions, so it’s not always required to sell your home or vehicle. Chapter 13 bankruptcy allows for payment plans, so you shouldn’t need to worry about losing a business or home.
Source: The Huffington Post, “Should We File Bankruptcy Because of Business Debts?,” Steve Rhodes, March. 31, 2015