Here’s What To Consider Before Filing For Bankruptcy – NBC 6 South Florida
The pandemic has put financial strain on so many families, and some of you may even feel like you are in financial shambles.
The number of people filing for bankruptcy actually declined during the pandemic due to federal protections. But if you are considering bankruptcy as an option, there are some things you should keep in mind.
There are two types of personal bankruptcy: Chapter 7 and Chapter 13.
“Bankruptcy is an important last resort,” said bankruptcy lawyer Sarah Mancini.
Chapter 7 is the most common type of bankruptcy and is known as “run-off” bankruptcy. It lets you keep your home so you aren’t behind on your mortgage payments, as well as your car and most of your belongings.
If you have a second home, recreational vehicle, or luxury items, they will be sold to pay off your creditors.
Chapter 7 is usually the best for those with a credit card and medical debt.
“I think a rule of thumb to consider is if the amount of debt they have is more than they can reasonably expect to be able to repay and if their creditors start to take action against them for recover, ”Mancini said.
There are income limits on who can file for Chapter 7 bankruptcy.
If you qualify and the judge has approved your case, the process is usually completed in three to four months. Your debt will be cleared once the process is finalized.
Chapter 13 bankruptcy is known as the “Salaried Plan” because you need regular income to qualify.
The court will offer you a three to five year repayment plan. You’ll be able to keep all of your assets, but don’t expect to keep much of your salary beyond basic living expenses.
“So it’s not a free prison release card. It’s not a quick fix, ”Mancini said. “It depends on whether you can afford to pay what you are required to pay under the bankruptcy code.”
Chapter 13 is best for people who are behind on their mortgage and the process takes longer than Chapter 7.
It’s important to note that filing for bankruptcy will essentially ruin your credit.
Chapter 7 stays on your credit report for 10 years and Chapter 13 stays on your report for seven years.
“I think the negative credit consequences are sometimes overestimated because the reality is that for someone who is overwhelmed with debt and has already fallen behind on their mortgage, credit card payments, the credit score credit has already taken a hit, ”Mancini said.
Mancini said you should also consider seeking professional help before making the decision to file for bankruptcy.
“This is one of the most important financial decisions a person can make and if you do it alone without a lawyer representing you there is a huge risk of doing something wrong and having bad consequences. that may ensue, ”Mancini said.
Free legal assistance is available for those who wish to file for bankruptcy.