Many people are in a situation where they cannot pay their debts and need to file for bankruptcy. This can be due to loss of income, high medical expenses, an unaffordable mortgage or spending beyond their means.
Filing for bankruptcy can reduce or eliminate debt, save your home from foreclosure and stop creditor harassment. But it can also have serious consequences, including long-term damage to your credit.
- You’re behind on your mortgage
If you are behind on your mortgage, filing Chapter 13 bankruptcy may be a good option for you. This type of bankruptcy allows you to restructure your debt, including mortgage payments, over the course of five years. Normally, mortgage companies are reluctant to pursue foreclosure once you have missed one payment, but every missed payment increases your chances of losing your home.
Creditors generally want to avoid costly litigation and will work with you to arrange a manageable repayment plan when you are behind on your payments. This will have a negative impact on your credit score, but it’s usually better than the alternative: foreclosure.
It is a good idea to speak with a budgeting specialist before filing for bankruptcy. Creditors also offer other types of debt relief programs, such as loan modification and debt settlement. However, these programs can take 3-5 years to reach an agreement and don’t guarantee complete debt relief.
- You’re being harassed by creditors
Creditor harassment is one of the most common reasons people file for bankruptcy. When creditors are constantly calling, demanding payment and other harassing tactics, it can be very stressful. Filing for bankruptcy can stop this behavior, and it can also reduce the amount of debt you must pay.
When you file for bankruptcy, a court-ordered law known as the automatic stay immediately prevents creditors from calling or taking other actions against you. This includes filing lawsuits, garnishing wages or seizing property. However, you should still consider alternatives to bankruptcy before filing. You may be able to negotiate with creditors, or you might be able to work with a credit counselor to come up with a debt repayment plan.
Many people who file for bankruptcy are suffering a serious financial setback. They have lost a job, or had major medical bills and other expenses that they couldn’t afford to pay. Bankruptcy can wipe out some or all of this debt, and it can stop foreclosures, repossessions and utility shutoffs.
- You’re behind on car payments
Bankruptcy can reduce debts, save a home from foreclosure and keep bill collectors at bay. However, it also can have serious consequences for your credit score and make it hard to borrow money in the future.
Many people who file bankruptcy have suffered big financial setbacks like a divorce, job loss or illness that has piled on medical debt. Then late fees and interest have driven their credit card bills and other debts to unmanageable levels.
Before filing, consider if you can get back on track by reducing expenses or boosting income through a side gig. A financial coach can provide additional ideas. You can also consider selling property or assets to raise cash if needed. Also, all bankruptcy procedures allow you to retain certain assets through exemption laws that vary by state. These can include your house or car, tools and equipment used for work and personal belongings. However, you may be required to surrender these items if the lender takes action to repossess or foreclose on them.
- You’re behind on child support
Child support debt is considered priority debt and will not be discharged in bankruptcy. However, bankruptcy filing does instantly halt any collection actions from the creditor, such as wage garnishment or seizure of property. Those who are behind on child support payments may want to consider Chapter 13 bankruptcy to help get them caught up.
There are many reasons why people find themselves in a position where they cannot pay their child support bills.
There are reasons why filing for bankruptcy may be a good idea for your financial situation. Everyone’s financial situation is different and it is a good way to alleviate all the stress and burden if you cannot catch up. Keep in mind that there are always drawbacks to decision making especially when it comes to finances. That is why hiring a Harrisburg bankruptcy lawyer to walk you through the process is the best bet.
