When one's bills begin to mount and feel like they are too much to handle, there are many debt recovery solutions available. Whether it is due to credit cards, medical bills, or personal loans, excessive debts can take their toll on a person's life. To remedy the issue, some simply decide to spend less, while others consult a debt management company for help. For some people, declaring bankruptcy is also an option, but is it the best one?
What is Bankruptcy?
Often seen as a last resort, bankruptcy is a legal proceeding where a person or business is no longer able to pay their bills. Two common reasons for filing are the loss of a job or a sudden medical emergency. Usually the debtor files a petition, although creditors occasionally do all the work, but that is rare. Following the legal proceedings, the debtor receives a fresh start, free of his or her financial obligations. It also stops the stream of phone calls from debt collection services.
There are two common types of bankruptcy, Chapter 7 and Chapter 13.
-Chapter 7, also known as liquidation, allows the filer to forfeit his or her assets in order to have any debts discharged. A trustee will then sell off those assets. Someone filing for Chapter 7 must also pass a €Means Test€, which compares a person's income to that of the state average. Oftentimes, one files if he or she does not have a lot of assets or make a lot of money.
-Chapter 13, or debt adjustment, allows individuals to reorganize their debts in order to keep their properties. Under Chapter 13, a person pays off the debts over three to five years, preventing an impending foreclosure, repossession, or wage garnishment. This mainly applies to those with regular income and valuable property. While one does not have to pass a Means Test, there are still limits for qualification.
While bankruptcy sounds like a simple alternative, it still has its effects. One must pay a fee before filing, and it often takes a few months for everything to become finalized. Also, bankruptcy filings stay on a credit report for up to 10 years, and could make it difficult to purchase a car or house down the line. That does not mean it is impossible, though. Consulting a lawyer versed in this field is the first step towards making a decision.
Before filing, one may also want to consider researching debt management companies, which help reduce the total amount someone owes. These debt management companies take a look at income and expenses. Like any business, there are disreputable companies that only care about making money, so proper research is important.
What is Bankruptcy?
Often seen as a last resort, bankruptcy is a legal proceeding where a person or business is no longer able to pay their bills. Two common reasons for filing are the loss of a job or a sudden medical emergency. Usually the debtor files a petition, although creditors occasionally do all the work, but that is rare. Following the legal proceedings, the debtor receives a fresh start, free of his or her financial obligations. It also stops the stream of phone calls from debt collection services.
There are two common types of bankruptcy, Chapter 7 and Chapter 13.
-Chapter 7, also known as liquidation, allows the filer to forfeit his or her assets in order to have any debts discharged. A trustee will then sell off those assets. Someone filing for Chapter 7 must also pass a €Means Test€, which compares a person's income to that of the state average. Oftentimes, one files if he or she does not have a lot of assets or make a lot of money.
-Chapter 13, or debt adjustment, allows individuals to reorganize their debts in order to keep their properties. Under Chapter 13, a person pays off the debts over three to five years, preventing an impending foreclosure, repossession, or wage garnishment. This mainly applies to those with regular income and valuable property. While one does not have to pass a Means Test, there are still limits for qualification.
While bankruptcy sounds like a simple alternative, it still has its effects. One must pay a fee before filing, and it often takes a few months for everything to become finalized. Also, bankruptcy filings stay on a credit report for up to 10 years, and could make it difficult to purchase a car or house down the line. That does not mean it is impossible, though. Consulting a lawyer versed in this field is the first step towards making a decision.
Before filing, one may also want to consider researching debt management companies, which help reduce the total amount someone owes. These debt management companies take a look at income and expenses. Like any business, there are disreputable companies that only care about making money, so proper research is important.