Bankruptcy Basics: When Should One File for Bankruptcy
The rate at which people are filing for Chapter 7 bankruptcy in the United States is alarming. According to studies, over 1.5 million applications are filed every year. Of these, 97 percent are individuals.
At times, there’s no option other than filing for bankruptcy. And yes, declaring bankruptcy is a scary proposition. It may seem like you or your business is just a few inches from going under.
But how do you tell that it’s time to declare bankruptcy? Well, this is not an easy question. And many people would only consider this as a last resort after going through other debt-relief options in vain.
However, exercise caution while weighing your options. Bankruptcy takes a huge toll on your financial records. But that’s not all, there’s a societal stigma attached to it. For most people, bankruptcy is a financial scar that marks you as a failure for the rest of your life.
However, that’s not always the case. It is like a financial scab that looks nasty for a while. However, with the right care, attention and advice it fades away. That’s why bankruptcy laws exist, to give people a second chance and not to punish them. Therefore, don’t consider this option without the help of a top-rated bankruptcy lawyer to help you weigh both sides before deciding to go bankrupt.
The Reasons to Consider When Filing for Bankruptcy
Studies show that medical debt and job loss are the main reasons why people declare bankruptcy. Many times, these two factors gang up and dim the family’s financial plans.
Health challenges make it difficult or impossible for a person to work. The result is you either quit the job or the company relieves you of your duties. This is a toxic combination; you lose your income as the medical expenses soar up.
Other than this, there are other less imposing situations why people consider filing for bankruptcy.
- when heading for a divorce
- creditors are on your neck to pay your debts
- your home is in danger of foreclosure
- a credit card is your only way of paying for things
- you’re using one credit card to pay for another
Do I Qualify for Bankruptcy?
Do you know that there are two types of bankruptcy options for individuals? One in chapter 7 and another in chapter 13. Each one of these has its specific monetary qualifications.
For instance, chapter 7 bankruptcy is for people who cannot make it to pay their bills. To qualify for this bankruptcy, you must earn less than the median income for a family your size in your state. But what happens if your income surpasses this median limit? Well, you can try to pass the “means test”. Here, the court examines your income against the expenses to determine whether you can pay for these bills or whether you need the Chapter 7 bankruptcy reliefs.
Chapter 13 bankruptcy is known as “wage earner’s bankruptcy”; it requires one to have a steady source of income and secured debts of less than $1,184,200.
Is Bankruptcy Beneficial?
Well, giving a yes or no answer to this question is not easy. However, here is a guideline for making the final decision.
Can you find a way of getting out of debt in the next five or so years? If you research all the available solutions to no avail, then yes, bankruptcy is beneficial to you.
Take your time to weigh the advantages and disadvantages of this decision. And while you cannot go to jail for owing someone money, declaring bankruptcy gives you a lifeline to take charge of your finances. It is well managed, you’ll emerge from it victorious and capable of buying new assets.