The average person has over $90,000 in debt. Some of the most common causes include divorce, job loss, and medical bills.
What happens if you can’t make your payments on time? It can affect your credit history and score. Not only that, but it may lead to lawsuits.
Fortunately, there is a way to eliminate unsecured debts—by filing for bankruptcy. If anything, it can provide you with a fresh financial start.
What is it and how does it work? Find out by reading our guide to bankruptcy below!
What Is Bankruptcy?
Bankruptcy is a legal proceeding that allows you to erase most, if not all of your debts. As part of the process, your assets will be measured and evaluated, and used to repay a portion of the outstanding amount.
In the United States, it’s governed by federal law, which is also known as the “Bankruptcy Code.”
A Guide to Bankruptcy: 4 Things to Know
Declaring bankruptcy may help erase your debt, but it also has long-lasting consequences. Here are some things to know about the process.
1. It Can Take Several Months
Bankruptcy is not an “in and out” process. That is, it can take several months to complete, sometimes longer.
For example, filing chapter 7 bankruptcy can take anywhere from four to six months. Other types such as chapter 11 and 13 bankruptcies can take even longer (e.g. up to five years).
2. Filing For Bankruptcy Isn’t Cheap
Filing for bankruptcy isn’t free. For one thing, you’ll have to pay a filing fee, which will cost you a few hundred dollars.
Not only that, but you may need to hire a bankruptcy attorney to help you with the legal documents; this can cost anywhere from a few hundred to a few thousand dollars. Fortunately, most of them do allow you to pay in installments.
3. It Will Affect Your Credit Score For Years
Bankruptcy will stay on your credit report for seven to ten years; this will affect your ability to open credit cards and get approved for loans such as mortgages.
With that said, it is possible to rebuild your credit. For example, you might be able to get a secured credit card; it’ll come with more restrictions and higher interest rates, but it’ll open the door for you to start over.
4. It Requires Complete Honesty
Filing for bankruptcy requires complete disclosure. That is, you have to be completely honest about your income, assets, and debts.
Otherwise, you risk being prosecuted for bankruptcy fraud, which can result in serious consequences. Depending on the situation, it can even result in jail time.
Understanding the Bankruptcy Process
And there you have it—a short guide to bankruptcy. Given the potential consequences, it’s very important that you weigh your options before making a decision.
Looking for more finance tips? If so, be sure to check out the rest of our business section!