Overwhelmed With Debt? Is It Time to File for Bankruptcy? – NBC4 Washington
The pandemic has strained so many families. Some of you may even feel like you are in financial shambles. But does that mean you should consider filing for bankruptcy?
This is a difficult question to answer on your own.
The number of people filing for bankruptcy actually declined during the pandemic due to federal protections in place. But these will not be here forever.
If you hit rock bottom and are considering bankruptcy, experts at the National Consumer Law Center warn of a quick decision.
“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, ”said Sarah Mancini, a bankruptcy attorney at the National Consumer Law Center.
Mancini says it’s important to understand your options when filing for personal bankruptcy. There are two types: Chapter 7 and Chapter 13.
Chapter 7 is known as “liquidation bankruptcy” and it is the most common. Your debt will be wiped out to give you a fresh start. You will be able to keep your house if you are not behind on your mortgage payments, as well as your car and most of your belongings.
But 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.
There are income limits on who can file for Chapter 7 bankruptcy. If you qualify and the judge approves your case, the process is usually completed in three to four months.
Chapter 13 is known as the “Salaried Plan” because you need regular income to qualify.
The court will put you on 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 card without getting out of prison; it’s not a quick fix, ”Mancini said. “You know it depends on whether you can afford to pay what you are required to pay under the bankruptcy code.”
Mancini says Chapter 13 is best for people who are behind on their mortgage.
Filing for bankruptcy will essentially ruin your credit. Chapter 7 stays on your report for 10 years and Chapter 13 for seven years.
“I think the negative credit consequences are sometimes overestimated,” Mancini said. “Because the reality is, for someone who is overwhelmed with debt and has already fallen behind on their mortgage, their credit card payments, their credit rating has already taken a hit. “
Mancini says filing for bankruptcy is one of the most important financial decisions a person can make, and trying to do it without a lawyer poses a huge risk to you.
If you need help or advice, filing for bankruptcy shouldn’t add to your money problems. The National Center for Consumer Law has information on where to find free legal services to help you get through this difficult time.