How Bankruptcy Can Help You Survive Financially

There's a bankruptcy myth floating around that says most Americans who file for bankruptcy do so because they lived a lavish lifestyle and spent beyond their means. However, according to a 2013 CNBC report, more than half of all bankruptcies are initiated due to medical bills. The stereotype of people filing for bankruptcy because they spent too much and got in over their heads with credit cards no longer applies in today's economy. Here are some of the ways bankruptcy can help those who face debts they're unable to pay:

Debt discharge

The most evident advantage of filing for bankruptcy is that it forgives many forms of debt, including credit cards and medical bills. This means you're no longer responsible for paying them, giving you a clean slate. Giving yourself a clean slate will allow you to get your personal finances in order and under control. This should help you reduce any stress you have over your money as well as any family stress that might be present. Then finally the day that you make it out of debt, you may find yourself with an overwhelming sense of freedom.

Debt reorganization

There are several types of bankruptcy, and not all of them wipe away debt. If you file for Chapter 13, your debts can be reorganized and consolidated into a more manageable solution for repayment. Though this may not be as good as getting your debt completely forgiven, it will still allow you to get your finances in order in order to pay off your remaining debts. Think of it as a long-term strategy to getting yourself to be debt free and out of bankruptcy within a certain period of time. 

End collection harassment

Creditors are probably the worst part of being in debt. However, if you have to file for bankruptcy, one of the most immediate advantages of bankruptcy is that the court will issue an 'automatic stay,' which legally blocks menacing creditor and collection agency phone calls and letters that rob you of peace of mind. Being in bankruptcy and massive amounts of debt is horrible and you feel horrible. It creates tremendous stress on you and anyone that might be around you. Peace of mind is important while you are trying to recover financially. The last thing you will need is harassment from those mangy creditors even if it is their job to come after for the debts you owe.

Stop foreclosure and repossessions

A common misconception is that you will lose all of your property when filing for bankruptcy. However, there are federal and state bankruptcy exemptions that allow you to retain your house and even personal property such as jewelry. Bankruptcy consulting firms are a rich resource regarding bankruptcy laws. Consulting firm like Exelby & Partners Ltd. can assist you with the bankruptcy process and help you retain as much personal property as possible.

Stop wage garnishments

Some forms of bankruptcy can even put an end to wage garnishments. Again, a bankruptcy firm will know how to legally stop such a garnishment.

Financial advisor Suze Orman gives the following advice about filing for bankruptcy: "When somebody really doesn't have money to pay their bills then they should claim bankruptcy and face it right on and start all over again." In fact, in a recent interview with Oprah Winfrey, Orman concluded, "You just need to know that your credit will eventually recover, and it's not that big a deal." The various bankruptcy options available are an effective means of assisting those who struggle with debt and often are unable just to meet everyday expenses.

How Bankruptcy Affects Your Credit Score

If you are facing bankruptcy, you’ve probably already realized that your credit score is going to take some damage. You now want to know the hit your credit score will take, how long it will take to recover from bankruptcy, and how to find someone to help you through the process. How far your credit will plunge is entirely dependent on where your credit score is at when you file. After bankruptcy, most credit scores end up in the 520-540 range regardless of where your credit began, so your score will fall much farther if you start with a score of 720 than it would if you’re starting at 600. 

Not All Bankruptcies Are Created Equal

When it’s time to file for bankruptcy, you need to decide if you will file for Chapter 7 or Chapter 13 bankruptcy. Chapter 7 bankruptcy, sometimes referred to as a “straight bankruptcy,” offers a clean slate and a fresh start. But it comes at a high cost—your assets are liquidated and used to pay off as much of your debt as possible, and it stays on your credit report for ten years. If you have a large number of personal assets, this may not be your best option. 

According to a financial advisor specializing in bankruptcy in Utah, Chapter 13 bankruptcy is for those who have property they wish to keep. It reorganizes your debt and helps you create a plan to pay off your debt over a period of three to five years. With Chapter 13 bankruptcy, your assets and property will be left alone, for the most part, making this option more popular with homeowners than Chapter 7. At the end of a period of time determined by the terms of the Chapter 13 bankruptcy, the remaining debts are forgiven. 

Seeking Help from a Professional

Filing for bankruptcy isn’t the sort of thing you should try to do alone, and it may not be the right decision at all for you. The most important first step you can take is to schedule a financial consultation with a good bankruptcy lawyer, whose job it is to educate you and help you make the best decisions possible regarding your financial future. A bankruptcy lawyer can assist you in understanding the consequences of bankruptcy, assessing your alternatives and reaching an informed conclusion as to how to manage your financial situation from there on out. 

Your financial situation now could very well influence the rest of your life, so it’s of the utmost importance to gain as much education as possible on how bankruptcy will change that situation before moving forward. Our government has laws in place to protect those who file for bankruptcy, but trying to navigate them on your own can be nearly impossible. An experienced bankruptcy lawyer can help you make sense of the legal and financial jargon, getting you the best deal possible when it comes to the terms of your bankruptcy.

A bankruptcy lawyer may also be able to coach you through preserving some of your credit during the course of your filing and subsequent bankruptcy period. These professionals often have experience with money management techniques and debt relief strategies—use this experience to your benefit by inquiring about strategies you can use to quickly rebuild your credit after declaring bankruptcy.

Filing for bankruptcy can be a scary, but necessary, decision you have to make to ensure a better financial future for yourself. Your damaged credit will not last forever, and in time you will be able to rebuild your score. You are taking a fresh step to a brighter financial future.

Burdened by Bankruptcy? 5 Quick Tips for Emerging from Debt

If you declared bankruptcy in the past couple of months or years and are still struggling to get back to normal, you can be proactive to improve your life. The whole point of enduring a bankruptcy is to get your life back on track. Let's take a look at four tips to help you rebound.

Chapter 7 vs. Chapter 13 Bankruptcy

Although filing for either form of bankruptcy means it will show on your credit record for the next 10 years, there are significant differences between the two. With a Chapter 7 bankruptcy you likely had barely any disposable income, so you will be forced to liquidate your non-exempt assets in order to appease your creditors. Though this type of liquidation likely won’t cover the full amount owed, the remaining debt will be discharged (in nearly all cases).

If you are eligible for a Chapter 13 bankruptcy, also known as a reorganization bankruptcy, you meet minimum income requirements to avoid a complete asset liquidation. Instead, you’ll be able to keep your home and other assets as long as you adhere to a court-approved repayment plan. You will still be expected to pay your regularly scheduled mortgage and car loan payments in order to keep those assets.

If you qualify for it, Chapter 13 is much preferable to Chapter 7 bankruptcy, but in both cases you will have to rearrange your life in order to meet your obligations.

Create a Detailed Budget

Once you've declared bankruptcy, you'll have to develop a plan to handle your finances. This means spending mainly on necessities, with only a few luxuries from time to time. Follow the advice of Greg McBride: “Track your expenses for three months to get an idea of how much you're spending and where that money is going. Then create a realistic budget that fits within your monthly income.”

Apply for a Secured Credit Card

In order to rebuild your trustworthiness with credit, you'll have to start out with baby steps. The first step is obtaining a secured credit card. A secured credit card lets you improve your credit score little by little as you spend what you've deposited on the card. Reach out to bankruptcy trustees like those with Keith G. Collins Ltd in Winnipeg to help you through the bankruptcy and credit counseling processes. Once you've brought your credit back up to a respectable level, you'll soon qualify for traditional credit cards and be able to pass employer and landlord credit checks without a problem.

Bring Cash Everywhere

While you'll be able to qualify for a secured credit card after bankruptcy, you should always carry cash wherever you go. You won't qualify for any lines of credit with significant spending caps, so you'll have to spend within reason for a series of years until you can prove that you are once again credit worthy.

Establish a Bill Paying Schedule

One of the best ways to rebuild your credit and avoid extra costs is to pay all of your bills on time and in full. If you run out of cash and are only able to pay part of your bills or make late payments, your credit will continue to suffer. Don't let that happen. Create a calendar that is specifically devoted to bill due dates. Rebuild your credit little by little and eventually you'll be able to qualify for loans and lines of credit once again.

If you've declared bankruptcy, don't wallow with hesitancy and indecision after the fact. You have a golden opportunity to get your life back on track. Follow the advice above and you'll be well on your way to a return to normalcy.