Bankruptcy rates went up during the recession of 2008 and millions of those who were unable to afford their expenses and pay their bills were met with a judgmental look by the rest. However, if you think about it, bankruptcy is a much better option than burying your head in the sand. It can actually provide you with a way out of your debt. It’s the sensible thing to do when you don’t have enough money to pay your bills so that you can face your life and get a chance to start all over again.
It’s not an absurd advice; in fact, it’s the voice of reason and many people have heard it in the last decade. In 2008, bankruptcy filings went up by 32% and jumped up to 1.1 million. In 2012, the filings went up to 1.3 million, while in the mid of 2013, the filings went closer to 1.1 million.
Many people feel disgraced when someone suggests that they should file for bankruptcy, even if that someone is a financial advisor who knows how to deal with such a situation. However, there isn’t any other better alternative to all this. What will you do if you have mortgage debt, credit card debt, and car loans and you stop paying them simply because you don’t have enough money?
The other possibility is much more disgraceful and the alternative to filing bankruptcy is much worse. Your creditors will sue you and win, and that will give them the legal authority to strip you of your assets and garnish your wages. Filing for bankruptcy gives you some amount of financial control and doesn’t leave you at the mercy of your creditors.
Bankruptcy is the legal route and it’s better to let your creditors know that you can’t afford to pay them back. Bankruptcy is a lot like reaching for a life jacket when you’re drowning. You shouldn’t feel ashamed for trying to survive in this dog-eat-dog world.
The most commonly filed bankruptcy types are chapter 13 and chapter 7. Having basic knowledge about how both these types of bankruptcy work will give you adequate understanding as to why bankruptcy is a good way to deal with your financial situation that is getting out of hand.
Liquidation of Nonexempt Property
Also known as chapter 7, this type of bankruptcy involves the sale of all nonexempt assets of the debtor, although the sale depends on the fact that the assets are deemed worthy. It allows the debtor to keep ownership of certain exempt property that could include the house, furniture, retirement funds and such things.
It will discharge the debtor from any personal liability for most of the debts and prevents creditors from collecting any payments from the debtor.
Individual Debt Adjustment
Also known as debt adjustment, this type of bankruptcy acts like a consolidation loan and allows the debtor to keep all the property, but they have to pay the debts over a decided duration, usually between three to five years. The debtor should make all the mortgage payments according to the repayment plan.