The coronavirus pandemic has left quite of wreckage in its wake, some of which is financial uncertainty and unemployment. Despite the government relief granted under the CARES act, a lot of people are frightened by the uncertainty this period poses. The unemployment rate has increased drastically with predictions of further increase and lots of people are behind on their loan repayments. With the insecurity, most people wonder when it is the right time to file for bankruptcy. Bankruptcy shouldn’t be considered a bad thing as it can be the best step to take you out of financial ruin. So, what should you consider when the idea of bankruptcy surfaces?
Assessing your financial predicament
Will you be able to make payments after the debt collection exemption period is over? Have you lost your job as a result of the COVID-19 pandemic and can’t pay your loan repayments? If yes, you need to give some serious thought to your financial situation so you can figure out the next step to take. To find out where you are financially, you need to inventory all your assets from stocks, bonds, retirement funds, real estate, vehicles, savings accounts, and other funds, and add them up. The next step is to add up your credit statements and your bills. If your asset value is less than what you owe, filing for bankruptcy might be the way to go.
Understanding the effects of bankruptcy
Despite the bad rep given to bankruptcy, it is one way to get out from under a large debt load. There are some consequences like long term credit score damage which can hinder your borrowing ability in the near future. However, late loan payments will also result in credit score damage so it might be worth the risk. There are two major types of personal bankruptcy; Chapter 7 and Chapter 13 and they will stay on your credit record for 10 years and seven years respectively. It is essential that you contact your creditors to see if they may be willing to negotiate with you before you file for bankruptcy.
Filing for bankruptcy
There are two major ways one can go bankrupt – by voluntarily filing for bankruptcy or by creditors asking the court to order the bankruptcy of a person. You need to consult a lawyer before filing so you can find the best fit for your situation.
Chapter 7 Bankruptcy
Most people file for Chapter 7 bankruptcy because of overextended credit, medical expenses, unemployment, and marital issues. Thus, bankruptcy liquidates your assets to pay off as much of your debt as possible and you will receive a notice of discharge within four months. However, the record of this bankruptcy may stay on your record for 10 years.
Chapter 13 Bankruptcy
This type of bankruptcy allows people to keep some assets even if the assets have value sufficient to offset the debt. Chapter 13 bankruptcy allows people to pay off their debts over a stipulated period, usually three to five years. If you have a consistent income, Chapter 13 offers a grace period, where any debts remaining after the end of the grace period are discharged.
The idea of bankruptcy is scary to most people and businesses. However, bankruptcy is a legal tool put in place to protect people from lifelong debt. It is a complex issue and, if you are considering bankruptcy, you should consult an attorney. The attorneys at Dsouza and Strachan Law Group have the skills and experience to get you back on track. Contact Dsouza and Strachan today for a free consultation.