There were almost 800,000 bankruptcy filings in 2019, which is actually down from years previous despite being such a large number. Filing for bankruptcy is a lifesaver for some situations but isn’t something that should be taken lightly and jumped into. Before filing bankruptcy, you should consider all of your options and weigh the consequences.
Luckily for you, we’ve put it all in one place for easy access. Read on for the top eight things to consider before you make your choice:
Consider the Long-Term Effects
Many people who haven’t done a lot of research into bankruptcy think that it’s an easy way out of a sticky financial situation. They believe that once you file, everything is just wiped away, and you get to start completely fresh. And while aspects of that are true, it’s important to understand that there are some lasting consequences.
It’s very likely that your credit score will take a big hit (though it’s also likely that it already has to be in that place). After you file, you’ll have to work hard to make the right decisions to build it back up again.
These long-term effects are the worst thing, but you need to have a realistic viewpoint before deciding.
Know the Different Types
Another thing to consider is what type of bankruptcy you want to file because each will provide a different scenario for you. Chapter 7 bankruptcy is the most common choice and is generally used by people with unstable incomes. In this filing, your debts are erased, but you must also give up certain assets in exchange.
Chapter 11 bankruptcy allows the petitioner to negotiate with their creditors to reorganize their debts and payment plans. It’s often used by businesses.
Chapter 13 bankruptcy is similar to chapter 11 but has a longer timeline (typically years instead of months) for paying off debts with a new plan.
It’s important to know what each type will offer to make the most informed decision.
Possibility of Saving Yourself
While filing for bankruptcy can seem like the best option to move forward and get out of a bad situation, you must look at all the options first.
Even if you don’t want to, sometimes selling assets can give you the boost you need to get out on your own. This could be a home, property, cars, recreational vehicles, or a business.
Some creativity may allow you to avoid bankruptcy altogether.
Put on the Public Records
Before filing bankruptcy, you should know that it gets put on the public record, and anyone who wants to can find out the details. This would mean that if you were working with an investor in the future, they would be able
to see that you filed for bankruptcy in the past. That could possibly be a deterrent for them.
A bankruptcy filing is also on a credit history for about ten years.
It should also be said that for most people, this won’t be a big deal and likely won’t become an issue.
Work With a Lawyer
One of the best things you can do when you’re deciding or starting to file for bankruptcy is to search for a local bankruptcy lawyer and find someone to work with.
The details of bankruptcy are so technical, and the process has to be completed just right; it’s not something to tackle on your own. A lawyer will also be able to give you advice on which type of bankruptcy best fits your situation.
A lawyer also has an outside perspective on your situation and might see a way out of bankruptcy for you that you hadn’t considered before.
Communicate With Creditors
It may seem like a pointless venture, but having open communication with your creditors can do wonders for your situation. At the end of the day, creditors just want to be paid. And you filing for bankruptcy makes that
much more difficult for them, which is why they might be willing to work with you before filing to set up a new plan.
Be honest about your situation and let them know your ideas but don’t be demanding and outrageous. Remember, they’re in the business of making money, and you have to appeal to
their end goal.
Remember It Can Cost You
As crazy as it sounds, bankruptcy isn’t cheap, and you need to know what you’ll be expected to pay and if you can afford that before you file. On average, it costs anywhere from $350-$4,000 to file for bankruptcy.
The cost is so different based on the type of bankruptcy you’re filing, if you use a lawyer or not, and what requirements you have to complete.
These aren’t fees you can write off or avoid,
so you need to be prepared to pay them. Filing bankruptcy doesn’t come at a great financial time, so it often takes some time to be able to work out how to pay so you can file.
There’s Work Involved
When you file for bankruptcy, you don’t just get to go to the courthouse and tell the judge what type of bankruptcy you want, pay your fees, and be done. Each type of bankruptcy and each area have different requirements for you to complete as well. These are most often a class and credit counseling. Both of these are designed to help you make better decisions in the future to avoid the same situation.
Most places require you to complete these tasks before filing can be completed.
Consider These Points Before Filing Bankruptcy
When your financial situation has gotten to a point where filing bankruptcy is on the table, it’s likely been a very stressful few years. But taking the time to look at all of your options, weigh the pros and cons, and do your research
will help you to feel the most confident in your decision. Then you can move forward with what’s best for your circumstances and get back on your feet.
If you’re interested in learning more about finances and ways to take care of your money, check out our other articles.