Are you looking for options for debt consolidation? If you are struggling with a large amount of debt, you may be considering: is bankruptcy an alternative? While it is not a decision to be made lightly, there are times when it becomes necessary. Bankruptcy can have consequences, but sometimes it is the best way to get back on track financially.
Debt can be a difficult thing to manage. If you find yourself in a situation where you cannot hope to repay your debt, or if the monthly payments are causing difficulties in your life, bankruptcy may be something to consider.
The number of bankruptcies filed in 2020 was more than 544,000, a significant decrease from the 750,000 or more filings in each of the previous years.
If you are considering bankruptcy, it is important to understand the implications of this decision.
Debt Consolidation: Considering Bankruptcy?
Filing for bankruptcy may seem like a daunting task, but the initial results can often be quite relieving. Consequently, There are many things to consider before making the decision to consolidate debt or file for bankruptcy. Be sure to work with a reputable company like Accredited Debt Relief.
Bankruptcy will put an end to the incessant phone calls from debt collectors and finally give you some peace of mind. It may seem like a daunting process, but once you understand your options and how bankruptcy works, you’ll see that it’s not so scary after all.
When you file for bankruptcy, your creditors are not allowed to try to collect payment from you. This includes garnishing your wages or seizing money from your bank account. In other words, filing for bankruptcy gives you some time to catch your breath.
The good news is that you’ll have some extra cash on hand. The bad news is that your spending power will be severely limited, especially in the short term.
Once you declare bankruptcy, your ability to obtain new credit plummets. You may also have difficulty being approved for an apartment lease, and certain jobs that place emphasis on credit may be out of reach. While it may seem like the end of the world, there are ways to improve your credit score after bankruptcy.
Bankruptcy can be thought of as a financial time-out. This will allow you to get relief from your current debt burden, but it will severely limit your options.
Debt & Bankruptcy
Considering bankruptcy can mean different things depending on the type you file. If you file for Chapter 7, most debts will be immediately dissolved. However, filing for Chapter 13 means that some or all of your debt may have to be repaid through an installment plan.
Bankruptcy does not guarantee that your debts will be discharged. If you file for Chapter 7 and do not meet the qualifications, the bankruptcy discharge will be dismissed by the court. Similarly, if you file for Chapter 13 and fail to complete the installment repayment satisfactorily, the discharge will be invalidated. Therefore, it is important to understand the requirements and risks associated with bankruptcy before taking this step.
If you are considering bankruptcy, the damage to your credit will be more severe than if you had not filed for bankruptcy. This is because not only will the bankruptcy filing appear on your report, but you will also have a number of unpaid debts, all of which will be reported as past due or in collections.
There are certain debts that bankruptcy cannot extinguish. You should be aware of these before considering bankruptcy.
Before taking the step of considering bankruptcy, it is important to understand the requirements and risks associated with this process. While bankruptcy can provide relief from debt, it does not guarantee that all debts will be discharged. If you file for Chapter 7 bankruptcy and do not meet the qualifications, the bankruptcy discharge may be dismissed by the court. Similarly, if you file for Chapter 13 bankruptcy and fail to complete the repayment plan satisfactorily, the discharge may be invalidated. Therefore, it is important to understand both the potential benefits and risks of bankruptcy before considering bankruptcy.
The list of debts that can be discharged in a Chapter 7 bankruptcy includes:
- Debts incurred through fraud.
- Income tax debt less than three years old.
- Taxes other than income tax (for example, payroll or sales tax).
- Federal tax liens.
- Unpaid child support or alimony payments.
- Debts owed to government agencies for fines and penalties.
- Student loans.
- Debts for personal injury caused by driving while intoxicated.
- Student loans.
- Debts for personal injury caused by driving while intoxicated.
- Debts owed to certain tax-advantaged retirement plans.
- Court fines and penalties, including criminal restitution.
- Attorney fees in child custody and support cases.
- Homeowner’s association (HOA) fees.
Filing for Chapter 13 bankruptcy can help discharge some types of debt, including non-criminal government fines and penalties, debts from a divorce or settlement agreement, taxes, HOA fees, and loans owed to a retirement plan. Be sure to determine the best way to get out of debt.
Types Of Bankruptcy, Explained
There are three primary types of personal bankruptcy: Chapter 7, Chapter 13, and Chapter 11. Chapter 7 is a liquidation bankruptcy, where the debtor’s assets are sold off to pay creditors.
Chapter 7
Many people look for alternatives for debt consolidation. One of the most well-known types of bankruptcy is Chapter 7. This is often what people think of when they think of bankruptcy because it entails discharging most debts.
Considering bankruptcy Chapter 7 may mean giving up some of your possessions, each state has set limits on what types of assets and how much money can be exempt. This amount varies from state to state, so it’s important to know the laws in your area.
Some states offer the choice of either the state’s bankruptcy exemption or the federal bankruptcy exemption- whichever is more beneficial to you. You can make your decision based on what will work better for your particular situation.
Different types of property that can be exempt from federal taxes depending on the law:
- You may be eligible for a homestead exemption on your primary residence of up to $25,150.
- Prescribed health aides.
- $13,400 for household goods, $625 per item.
- $1,700 for jewelry
- Crime victim compensation
- Up to $1,362,800 for traditional and Roth IRA accounts
Different states have different bankruptcy exemptions, which can be more or less generous than the amounts mentioned above.
Chapter 13
Chapter 13 has several advantages, the most significant of which is that debtors are usually not required to sell off their personal property to repay creditors. Another advantage is that debtors may be able to keep their homes and car. The downside of Chapter 13 is that debtors are still required to pay back a portion or all of their outstanding debt.
Under Chapter 13, you’ll be required to make payments toward your debts over a five-year period. This installment payment plan will help you get back on track financially.
After you finish paying off your debt through the bankruptcy payment plan, the bankruptcy will be discharged. If you default on payments during the plan, however, the bankruptcy will be dismissed.
Bankruptcies in the United States are typically filed under Chapter 7 or Chapter 13. Chapter 7 bankruptcies make up nearly 70% of all bankruptcy filings in the US. Most of the remaining bankruptcies are filed under Chapter 13.
There is a means test that has to be completed when filing for bankruptcy which will help determine what chapter you are eligible for. Form 122A-2, Chapter 7 Means Test Calculation is the form that will be used. If you can repay at least a good portion of your debt, then you will be required to file for Chapter 13.
If your income is below the median income level for your state of residence, you will qualify for Chapter 7 bankruptcy. If your income is above the median income level, Chapter 13 bankruptcy will be considered.
Although it may seem like a daunting task, filing for Chapter 7 bankruptcy may still be an option if your necessary living expenses consume all or nearly all of your income. This includes expenses such as housing, utilities, medical costs, food, and other obligations.
Chapter 11
If you own a business that is struggling to meet its debt obligations, you may be considering bankruptcy Chapter 11. This type of bankruptcy, also known as “reorganization bankruptcy,” can help the business stay afloat while it works out a debt settlement with creditors. Unlike personal bankruptcy, no means test is required in order to qualify for Chapter 11 bankruptcy.
A business that is struggling financially may choose to file for Chapter 11 bankruptcy. This allows the business to reorganize its debt and create a plan to repay creditors. Creditors may vote to approve the plan, as it offers them the chance to get at least some of the money they are owed.
Assuming the plan is accepted by creditors, the debtor will be granted an automatic stay from any future collection activities, including judgments, foreclosures, and repossessions. However, unlike Chapter 13 bankruptcy cases which are typically limited to five years of repayment, a Chapter 11 plan may last for many years.
How To Recover Credit After Bankruptcy
Filing for bankruptcy can have a lasting impact on your credit score. A Chapter 7 bankruptcy will remain on your report for up to 10 years, while a Chapter 13 bankruptcy will stay on your report for seven years after the filing date.
There are definite limits to what you can do when it comes to borrowing, qualifying for a mortgage, renting an apartment, or even getting certain jobs if you have bankruptcy on your record. The good news is that, like any other type of derogatory credit, bankruptcy does get better with time.
If you have a bankruptcy entry on your credit report, it will impact your credit score. The older the bankruptcy is, the less it will impact your score. Eventually, the bankruptcy will be removed from your report entirely.
As your bankruptcy falls off your credit report, you may be tempted to avoid all forms of debt. However, this could actually harm your credit score in the long run. A better strategy is to begin gradually applying for credit, starting about a year or so after filing. This will help you rebuild your credit and improve your financial standing.
One way to improve your credit score is by taking out a secured loan. Also known as a credit builder loan, this type of loan is offered by banks and credit unions to help people rebuild their credit.
The financial institution will loan the money because the debt will be secured by the loan proceeds. The savings account into which the proceeds are deposited will act as collateral for the loan.
At your local credit union, you can take out a secured loan for $2,000. Even if you have filed for bankruptcy, the credit union may still approve the loan and deposit the money into a savings account. The loan term could be anywhere from 12 to 24 months, and you would be expected to make regular monthly payments.
If you take out a loan from your credit union, you will not be able to access the funds in your savings account. Instead, you will need to make monthly repayments from either your income or by having the credit union deduct them from your savings account.
The credit union will help you improve your credit score by reporting your on-time monthly payments to all three major credit bureaus. You may be able to take out multiple loans with the credit union, which will help you rebuild your credit faster.
Is Bankruptcy An Alternative To Debt Consolidation?
There are a few things you can do to avoid bankruptcy altogether. One is to fix your credit, and another is to get a consolidation loan.
Repair Your Credit
It is often thought that credit repair is only for those who are trying to improve their credit score. However, it can also be an effective way to settle debts. Many creditors are willing to negotiate a settlement, as they know they are likely to get more money than if the debtor files for bankruptcy.
If you’re struggling to keep up with your credit card payments, a credit repair company may be able to help. By negotiating with your creditors, they may be able to get them to agree to lower the amount of money you owe.
Debt Consolidation Loans
If you’re considering; is bankruptcy an alternative to debt consolidation? You may want to look into how to get a debt consolidation loan instead. This could help you get your finances back on track without having to declare bankruptcy.
Consolidation loans are designed to help people who have several small debts by rolling them into one large loan with one monthly payment. This can often be lower than the total of the multiple payments you are currently making. Although the debt is not removed from your life, it can make managing your finances easier.
If you’re looking for a loan, you may be wondering if it’s better to go through a marketplace or apply directly to a lender. There are advantages and disadvantages to both approaches.
An online loan marketplace offers the convenience of a single application that gives you access to multiple lenders. This can save you time compared to applying to each lender individually.
