Bankruptcy is a drastic solution to your debt problems. It should only be used as a last resort. Depending on your situation you may not find the relief that you are hoping for from bankruptcy. It depends on the type of debt you have, the amount you make each year, and the items you want to keep. You will need to speak to a credit counselor in the six months before applying, and show that you have made a real attempt to pay back the debts.
Bankruptcy will set you up on a payment plan that reduces that amount you owe. You must pay the monthly payment for the length of the time you are in bankruptcy for your debts to be forgiven. You may also be required to liquidate your items as part of the bankruptcy. You are allowed to reaffirm some debts such as your home or your car payment during Chapter 13 bankruptcy, but this will not reduce the amount you pay them each month or the amount that you owe.
Student loan debt is rarely forgiven during bankruptcy, and if that is your biggest problem you may not find any relief from declaring bankruptcy. If you are overwhelmed with your student loan debt there are plenty of payment options that you can work out with your lender, including income based payments. This option will allow you to manage your student loans without declaring bankruptcy and help you get your finances under control.
You can often work out payment plans to deal with your medical debt as well. Some hospitals and doctors will forgive portions of the debt without you formally filing for bankruptcy. If you have had a serious illness in your family, the medical bills can add up quickly even with good health insurance. Hospitals are willing to look at your income to see if you qualify for a reduce payment plan. You should talk to the billing department and ask for an evaluation if you cannot make the payments based on your current income.
It is important to realize just how damaging bankruptcy can do to your credit. It will affect how soon you will qualify for another loan either for a home or a car. Any loans you do qualify for will be at a higher interest rate, and you may be paying for your bankruptcy that way for several years. A bankruptcy attorney may push you towards bankruptcy when you should seriously consider other options first.
Since you are required to visit a credit counselor before you file bankruptcy anyway, you should try the plan they work out for you and see if it helps your situation for a at least a few months before you declare bankruptcy. They may tell you that they can’t help you and then you should seek out a bankruptcy attorney, but a credit counseling service will help you to get control of your debt and make your payments manageable by reducing the amount you need to pay each month.
You may also try to settle some of the debts yourself if you are behind on payments. You will need to contact each creditor and offer them an amount that is a portion of the debt as payment in full. They will want a lump payment, and you will be taxed on any debt that is forgiven. You will need to get a letter in writing that states the remainder of the debt will be forgiven after you make the payment. You will need to keep that letter on file for several years after you have paid off the debt.
If you have mostly consumer debt and no real assets bankruptcy may benefit you and give you the chance to start over again. If you do decide to pursue bankruptcy, make a commitment to change your spending habits. Start following a budget and saving money so that you will never be in this situation again. You should consider taking a class or workshop on managing your personal finances to help you recover from the bankruptcy.
