Figuring out whether or not you should file for bankruptcy is a huge decision. The financial impact that comes with such a claim will last for years as well as drastically impact the options which are available to you.

Even though filing for bankruptcy is a very serious decision it should never be the first option you consider. Now, with that said, there is nothing wrong with taking this road if it is the best possible option for you and your family. So,  how do you figure out whether or not you should file for bankruptcy? It’s important to look at all the facts and help to get a better understanding of if bankruptcy is the right choice for you, continue reading.

What exactly is Bankruptcy?

For individuals or families who are having trouble meeting their debt obligations, bankruptcy is a legal process that businesses and individuals can go through to discharge some or all of their debt. After a debtor has started the bankruptcy process, all assets will be reviewed and could be considered to settle a portion of the debt.

What are the 3 types of bankruptcy filing options?

Chapter 7 – This is for businesses and individuals who don’t have many assets that can be used as repayment for their debt. For the unsecured debt owed that can’t be repaid with things like jewelry, the debt can be eliminated.

Chapter 11 – This is the common approach for businesses to take because Chapter 11 allows them to continue to operate but will provide them with a plan to settle their total debts owed. This option allows them to become once again profitable.

Chapter 13 – This option allows individuals to take advantage of a repayment plan to settle their debt while keeping their assets.

Bankruptcy is a very serious decision that should not be made lightly. It will impact you or your business negatively, for 7-10 years, which will cripple your credit indefinitely. However, it may be that bankruptcy is the best or only option available for your credit situation.

Common Reasons Why People/Businesses File for Bankruptcy

If you’re thinking about filing for bankruptcy, it’s wise to consult with an attorney who specializes in bankruptcy to help weigh out the pros and cons to determine if it’s the right option for you. Common reasons people opt to file for bankruptcy include:

  • Divorce
  • Drawing from accounts such as 401k as a form of debt settlement repayments
  • Foreclosure
  • Inability to meet repayment obligations
  • Lawsuits

Everyone’s situation is unique, which is why it’s important to consult with an experienced lawyer before making the decision and declaring bankruptcy.

What Other Options Are There?

Since bankruptcy will drastically impact your credit score and you can potentially lose important assets. This is why you should first consider other options such as:

  • Credit counseling
  • Debt consolidation
  • Debt settlement
  • Personal loans
  • Zero-interest credit cards

Do You Qualify?

Even though bankruptcy is a last resort, not everyone will qualify for it. Your unique financial and debt situation will determine what bankruptcy options you qualify for, and it may be none of them. They will consider things like your income, assets, and the amount of total debt that you owe to determine your options. Also, bankruptcy laws are different depending on what state you live in. No matter how you stack it, you should start by reaching out to a bankruptcy lawyer for help with exploring your options. It also depends on how much you owe and how much debt you have built up.

Pros and Cons of Bankruptcy on Home and Finances

As mentioned, bankruptcy is a huge financial decision that will hammer your credit score; but there are some things you’ll want to think about before filing:

Bankruptcy can impact your current job or your ability to find a new one. Certain companies won’t hire anyone who has declared bankruptcy within a certain period. Bankruptcy is also publicly noted, which means it won’t be a private matter.

If you have any cosigners connected with your debts, they can also be affected by your choice to declare bankruptcy. It’s your responsibility to discuss what you’re considering with them first because it can also drastically affect their credit score and history.

Your available options of purchasing a home or buying a car will be affected, thus limiting your options for 7-10 years.