Making the Decision to Claim Bankruptcy

As you read this article there are millions of people struggling financially throughout the world, looking for a way out of their debt and seeking relief in whatever way possible. Although some people knowingly got into trouble financially, the vast majority of people that struggle are honest, hard working folks that just caught a bad break in life. Perhaps they unknowingly made a bad investment decision or maybe they had an accident that now prevents them from earning the living that they once did. Whatever the reason, there becomes a point for many people when paying their debt obligations is no longer possible. Most people don’t know what to do in this situation, so many decide to do nothing at all, which inevitably creates a cycle of debt that is all but impossible to recover from.

Fortunately, there are a handful of solutions for people looking to get their finances back on track, one of them being bankruptcy. Each and every year, thousands of people seek bankruptcy protection as a last ditch effort to start over. What most people don’t realize, however, is that claiming bankruptcy doesn’t make debt magically disappear, nor does mean that one’s debt is forgiven entirely. In fact, under the two most common types of protection, Chapter 7 and Chapter 13, a certain portion of your existing assets will be used to pay creditors immediately upon initiating the bankruptcy process. Other debts will need to be paid off during the bankruptcy proceeding and even afterward.

The personal bankruptcy process typically lasts from 8-10 years, during which time obtaining any form of decent credit will be impossible. It’s also important to note that your financial records will be thoroughly evaluated prior to the filing process, as the bankruptcy court will need to know your current assets, liabilities and household income. You will also be required to pay a fee for filing (several hundred dollars) in addition to any fees for a bankruptcy attorney. While hiring an attorney is completely optional, a qualified one can really help you through the entire process; they can fill out bankruptcy claim forms and can even help you determine the type of bankruptcy protection that’s right for you based on your individual circumstances. If you don’t know the first thing about how to claim bankruptcy then you need to seek professional advice.

Of course, before making the decision to file you should understand some of the many financial repair options that exist besides bankruptcy. In most cases, a bankruptcy claim should be the last resort when it comes to financial rescue, as the process itself can take a large toll on your credit score and your future ability to obtain credit in the future. A qualified financial professional can help you make the right decision when it comes to saving you from your financial misery. Some of the more common alternatives to bankruptcy are listed below:

1. Attempt to Negotiate with your Creditors – although this is one of the more unpopular options, it is possible in some cases to negotiate payment of your debts with your creditors. This process is particularly common for people that have some income or form of assets to use as a tool in the negotiation process. Who knows, you may even be able to negotiate for less than you owe, but you won’t know unless you ask.

2. Enter into a Repayment Plan – if the simple thought of negotiating with your creditors makes your stomach turn then perhaps a better idea is to seek professional assistance to form a repayment plan. There are dozens of different agencies in each state that can help you to get your life back on track through different types of counseling and procedures. Coincidentally, these are the same agencies that you will be required seek counsel from if you decide to claim bankruptcy.

3. Debt Consolidation Loan – this is process by which your all of your outstanding loans are taken and combined into a single jumbo loan with a lower interest rate. While this sounds great, you need to be extremely cautious about signing up for one of these. The biggest risk is that you’re left with additional money (via reduced a reduced payment) that you will use to get further into debt. Another common concern regarding these types of loans is that they end up being more expensive in the long run, since your payback period is increased.