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Bankruptcy: A Fresh Start or a Last Resort?

Are you thinking about filing for bankruptcy?

What is Bankruptcy?

Bankruptcy provides a means for individuals and businesses to eliminate or reorganize their debts, giving them a chance to rebuild their financial future. By filing for bankruptcy, individuals can potentially have their debt wiped out or create a repayment plan that is manageable within their current financial situation.

There are different types of bankruptcy, each with its own set of rules and requirements. Chapter 7 bankruptcy, also known as liquidation bankruptcy, allows individuals and businesses to eliminate most or all of their unsecured debts, including credit card bills, medical bills, and personal loans.

Chapter 13 bankruptcy, also called reorganization bankruptcy, involves creating a repayment plan to pay off debts over a period of time, usually three to five years. This type of bankruptcy is beneficial for individuals with regular income who want to protect their assets while repaying their debts.

According to statistics released by the Administrative Office of the U.S. Courts, annual bankruptcy filings totaled 418,724 in the year ending June 2023, compared with 380,634 cases in the previous year. [1]

What is Bankruptcy?

Is Bankruptcy Always a Last Resort?

Bankruptcy does have its downsides. Filing for bankruptcy can have a significant impact on an individual’s credit score and report, making it challenging to obtain credit in the future.

Bankruptcy records are considered public information and can be accessed by potential employers, landlords, and lenders. It is important to understand that certain types of debt, such as child support, alimony, and student loans, cannot be eliminated through bankruptcy.

Before considering bankruptcy, explore alternative options such as debt management plans, negotiation with creditors, or seeking financial counseling.

Bankruptcy should not be viewed as the first option but rather as a potential solution after exhausting other avenues. Carefully review one’s financial situation, seek professional advice, and thoroughly understand the implications and consequences before proceeding with bankruptcy.

Is Bankruptcy a Fresh Start?

Bankruptcy can actually be a viable option to help individuals and businesses regain control of their finances and start anew.

Bankruptcy provides a breathing space, allowing individuals to take a step back and assess their financial situation without the constant pressure of mounting debt.

Bankruptcy offers the opportunity to eliminate or reorganize different types of debt. Chapter 7 bankruptcy, or liquidation bankruptcy, can wipe out unsecured debts such as credit card debt, medical bills, and personal loans.

Chapter 13 bankruptcy, or reorganization bankruptcy, allows individuals with regular income to create a manageable repayment plan over a period of time.

Is Bankruptcy a Fresh Start?

How is Credit Score Affected by Bankruptcy?

A Chapter 7 bankruptcy, also known as liquidation bankruptcy, will remain on your credit report for ten years from the filing date. A Chapter 13 bankruptcy, or reorganization bankruptcy, will stay on your credit report for seven years from the filing date.

During this time, it may be more challenging to access credit and loans, and you may face higher interest rates or additional fees when you do.

If you had a good credit score before filing for bankruptcy, you can expect a larger drop compared to someone with a lower score. On average, your credit score may decrease by around 100 to 200 points. 

Many individuals find that their credit score starts to improve shortly after filing for bankruptcy. This is because bankruptcy eliminates or restructures your debts, allowing you to start fresh and focus on rebuilding your financial health.

By practicing responsible financial management, such as making timely payments on any new credit accounts, you can slowly rebuild your credit score over time.

Stay vigilant and actively monitor your credit report. Checking your credit report regularly will help you identify any errors or discrepancies and take steps to correct them. This will also allow you to track your progress as you work towards rebuilding your credit score.

Can Bankruptcy Protect You?

When you file for bankruptcy, an automatic stay is put in place, which halts all collection activities from creditors. The automatic stay can also help prevent foreclosure, repossession, and wage garnishment, giving you a chance to regroup and work towards a solution.

Another way bankruptcy can offer protection is through the discharge of debts. While not all debts are dischargeable, common types such as credit card debt, medical bills, and personal loans often qualify.

Bankruptcy can also protect your assets. While it’s true that certain nonexempt assets may be sold to repay creditors in a Chapter 7 bankruptcy, exemptions exist that allow you to retain essential property like your home, car, and personal belongings.

In a Chapter 13 bankruptcy, you can keep all of your assets while repaying a portion of your debts through a court-approved repayment plan.

Bankruptcy can provide protection by allowing you to regain control of your finances. By working with a bankruptcy attorney, you can better understand your financial situation and develop a plan to rebuild your credit and improve your financial health.

Bankruptcy can also teach you important financial management skills and provide an opportunity for a fresh start, free from the stress and burden of overwhelming debt.

Can Bankruptcy Protect You?

When Should You File Bankruptcy?

If you find yourself overwhelmed by unsecured debt such as credit card debt, medical bills, or personal loans, bankruptcy may provide a fresh start by eliminating these burdensome obligations.

When the debt becomes unmanageable, and there is no realistic possibility of paying it off, bankruptcy can offer relief.

If your income is not sufficient to cover your debts and basic expenses, you may find yourself falling further and further behind. By filing for bankruptcy, you can work towards regaining control of your finances and avoiding further financial hardship.

If you are facing imminent legal action, such as foreclosure or repossession, filing for bankruptcy can halt these proceedings. 

If you are unable to see a clear path towards paying off your debts in a reasonable period of time, bankruptcy may be a last resort to help you regain financial stability.

While bankruptcy will have an impact on your credit history, it is often a temporary setback compared to the long-lasting effects of overwhelming debt.

With Frego Law bankruptcy lawyers by your side, bankruptcy can be the tool you need to rebuild your financial future and move towards a brighter tomorrow.

Contact Frego Law today to schedule a free consultation, and let us help you determine if bankruptcy is the right choice for you. Take that first step towards a fresh start now.

Source:

[1] Bankruptcy Filings Rise 10 Percent. (2023, July 31). United States Courts. https://www.uscourts.gov/news/2023/07/31/bankruptcy-filings-rise-10-percent

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