You’re feeling financial pressure, and it’s all due to your debt. If you’re getting collection calls, missing payments on utility bills or credit cards, owe taxes, or your wages have been garnished, you are in a serious debt trap. You simply may not be able to get out on your own. That’s when you need to turn to another mechanism: bankruptcy.
Not everyone who uses bankruptcy services is in such dire straits. There are plenty of reasons people wind up in more debt than they can pay:
- They borrowed money during a period of unemployment or medical illness;
- Their expenses increased due to a separation or divorce;
- They’ve relied on credit cards to spend more money than they make;
- They had to pay for emergency expenses.
Of all these sources of debt, one of the most dangerous is credit cards.Credit cards make it very tempting to stretch the limits of your budget, spending more money than you earn and hoping you can make up the difference later. Unfortunately, if you’re relying on credit to make ends meet, it’s going to be tough to find the extra money to pay it back. You might be able to make the minimum payment, but that way, interest rates quickly eat up your payments, and you make little progress.
The sooner you take action to get out of debt, the better off you’ll be. Although bankruptcy is often seen as a last resort, the truth is, it can help you get out of an impossible situation. If you’re feeling the heat from creditors, it’s time to start asking: what are personal bankruptcy services?
How Does Bankruptcy Work?
You can file for bankruptcy if you are insolvent, which means you owe more thanthe value of your assets. When you include mortgage debt, that actually includes most people, but when you’re no longer able tomeetyour obligations to repay your debts, or you’ve stopped making payments, that’s when it’s time to start thinking about insolvency.
Once you file for bankruptcy, there is an immediate stay of proceedings on collection actions, including collection calls. There are other ways to get debt collectors to stop calling, but the debt is still there even if they stop contacting you. The next step in bankruptcy is releasing you from your debt.
When you are discharged from bankruptcy, you won’t owe money to any creditors included in the filing. However, this only applies to unsecured debts – debts where there is no collateral such as taxes owing or credit card bills. If there is collateral or an asset that can be repossessed, then the loan cannot be included as part of your bankruptcy proceedingsif you wish to keep the asset.
In addition to the use of assets to repay your creditors, if your income surpasses a certain limit, creditors can also collect on surplus income. Half of what you earn beyond the limit will have to be paid to your creditors for up to 21 months. The limit is determined by how many dependents you have.
There are some unsecured debts that cannot be included in a bankruptcy either. These include:
- Alimony and child support;
- Student loans unless you have not been a student for seven years;
- Fines like traffic tickets.
Bankruptcy allows you to get out of debt that you might otherwise not be able to pay off in a timely manner, reducing the amount you will have to pay.
Pros and Cons of Bankruptcy
There are a couple of things to consider before you file for bankruptcy:
- Do you stand to lose significant assets, such as property or investments?
- How will your credit score be affected, and how will that affect your ability to qualify for future loans?
Certain assets are exempt from bankruptcy proceedings. The amounts depend on where you live, but exemptions typically include things like clothing, household goods, work-related tools, equity in your home, a motor vehicle up to a certain limit, and certain retirement savings. If you have a lot of equity in your home, a second property, non-retirement investments, or multiple vehicles, you can wind up losing a lot in a bankruptcy.
Your credit score may take a significant hit from filing for bankruptcy. Debtors with a good score (700 or higher) could see their score drop by 200 points, which will make it difficult or even impossible to qualify for loans in the future. However, bankruptcy only stays on your credit report for so long. The time period is different depending on where you live. By building up a positive history of credit, you can rebuild your credit score and make yourself seem more appealing to lenders once your bankruptcy no longer appears on your credit report. If you’re considering bankruptcy and you have debts in collections, or you’ve missed payments, your score has likely already been impacted. Bankruptcy gives you a chance to start again.
Are There Alternatives to Bankruptcy?
Bankruptcy is not your only option. If you identify that you have a problem with debt early enough, you may be able to find another way out of debt. One effective option is through using a consumer proposal.
As with bankruptcy, a consumer proposal will discharge you from your unsecured debts, while your creditors have an opportunity to recoup a portion of them. While in bankruptcy, creditors receive payment from liquidated assets and charges on surplus income for up to 21 months, creditors who agree to a consumer proposal receive a fixed monthly payment from the debtor. The debtor makes a single payment to a Licensed Insolvency Trustee who disburses it to the appropriate creditors.
Consumer proposals are also legally binding. If a majority of your creditors agree to accept the proposal, then all of your unsecured creditors must accept the conditions. A consumer proposal is an effective way to reduce your total amount owing and put a stop to interest charges, collection calls, wage garnishment, etc.
Bankruptcy can be a smart course of action when you see no other way to get out of debt. Get a clean slate and find financial freedom.