Is it better for you to avoid Bankruptcy?
Bankruptcy is legally declared inability of an individual or organization to pay their creditors. The purpose of bankruptcy laws are:
1) To give a fresh start in life to honest debtors.
2) To repay the creditors to the extent that the debtors has property available for payment.
There are several types of Bankruptcy: Chapter 1, Chapter 3, Chapter 5, Chapter 7, Chapter 9, Chapter 11, Chapter 12 and Chapter 13. Among them chapter 7 and 13 are most popular.
Difference between chapter 7 and chapter 13 Bankruptcy:
Chapter 7 bankruptcy: It will eliminate most of your debt like credit card debt, unsecured debt, repossession balance etc. You will get relief from your creditor’s harassment. But how will you be able to qualify chapter 7? It’s not so easy; you have to prove the court that you don’t have enough money to pay your creditors as well as to maintain regular living expenses.
Chapter 13 bankruptcy: The person who has a regular monthly income can file this case. It is a plan to repayment your debts. The creditors get their payment from chapter 13 Trustee to whom monthly payment is made by the bankruptcy debtor. After filing of chapter 13 case, Bankruptcy Court orders your creditors to stop all collection efforts immediately. It is good for those persons who don’t qualify for Chapter 7 because of his income or within last six years he filed a Chapter 7 case.
Effects of Bankruptcy:
There are some bad effects of Bankruptcy filing:
1) When you have declared yourself Bankrupt, all of your assets including your home will be under the control of the Trustee.
2) Bankruptcy filing can damage your credit history. It will be in your credit report for the next 10 years from the date it was discharged.
3) The chance of getting loans will be decreased because the creditors will first check your credit report before lending you money. So a fresh start in your life will also be affected by this.
4) You may lose your social status by filing bankruptcy. The status that you had in the past, in front of your friends and your family may not remain in future after filing bankruptcy.
We may think that Bankruptcy filing is the solution to get a rid of all debts. But it is not at all true; it will ultimately push you into rather deep trouble. The ways of making your financial position strong will be closed. Most importantly your mental stability may be in stress because of your surroundings. You will find no one is looking at you with the same kind of respect or honor that you had previously. There are certain expenses like Govt. tax, child support, federal student loan etc. which can’t be written off through bankruptcy.
Debt consolidation or Bankruptcy – Which one you should prefer?
The persons who are in debt problem can either chose debt consolidation or can file bankruptcy. But the question arises which will be the better choice. The answer absolutely without any hesitation is debt consolidation. The reasons behind this are:
1) Bankruptcy is temporary solution which can only give you relief for a certain period of time where debt consolidation is a permanent solution to make you debt free.
2) By choosing debt consolidation and to pay the creditors in full, you will be able to keep your credit report clean. Your debt will be reduced by a certain amount and with easy monthly installment you will be able to pay your creditors if you take debt consolidation program. The debt consolidation company will take care the dealing with your creditor, so that harassment from the part of creditors will be nil.
Now it’s up to you, which one you will prefer. It is your condition that should influence your choice. But before taking any major decision you should take the advice from professionals to know whether you should avoid bankruptcy or not.