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How to Avoid Bankruptcy and Steps to Take if Unavoidable

Following our article on the Commonwealth of Kentucky, USA, this article continues the Bluegrass State thread by focussing on bankruptcy. Here, you will find all that you need to know about how to avoid bankruptcy and what steps to take if bankruptcy is unavoidable.

What is Bankruptcy

Bankruptcy is a legal process that helps individuals and businesses to relieve their financial debts. Filing for bankruptcy is a final option only if you are unable to pay off debts in the manner provided by your creditors and you have exhausted all other options. Common types of debt include credit card debt, medical bills, past-due utility bills, and rent arrears, among others. However, there are some types of debt that cannot be discharged or are rarely discharged in bankruptcy. These include child support or alimony, student loans, and taxes.

Avoiding Bankruptcy

Bankruptcy can have a serious effect on your credit score. There is also the very real risk of losing your personal property or home by filing for bankruptcy, especially if your home is in foreclosure. Filing for bankruptcy and hiring an attorney can also add to your woes by adding additional costs that may be difficult to cover when you are facing financial hardship.

There are, however, a variety of steps that you can take, depending on your situation, that may help in avoiding bankruptcy. One option is to ask family and friends for financial help. Unfortunately, borrowing from Peter to pay Paul is rarely a wise option as it only serves to exacerbate your predicament and often results in strained relationships.

Liquidating Assets

Consider selling off any assets of significant value prior to filing for bankruptcy. Since these items may be lost anyway, trying to sell these items yourself may help prevent this process. You may be able to sell these items for a larger amount than a trustee may be able to. In addition, you can sell off smaller items and even creative items on social media channels like Facebook Market Place or various online shops, such as eBay and Etsy. This extra money may not cover all of your debt, but it just might help gain some breathing space while you explore other options.

Credit Counselling

There are many credit counselling companies that provide services for individuals to gain control of their finances. These counsellors can help to identify areas where costs can be cut, or advise on how to consolidate your debts. Counsellors are experienced with talking directly to many credit companies and can help work out deals to get payments lowered. Counsellors can also provide advice on how to save money every month that can be put towards debt.

Talk to Creditors

Although it may be intimidating to call credit companies directly, it can often prove to be very beneficial. Many of these companies understand the difficulties people face with their debt. If they are contacted directly by an individual considering bankruptcy, they are often motivated to work something out. This is especially true for companies that provide unsecured debt. During the bankruptcy process, they may not receive anything towards the outstanding debt. Some companies may even offer a significant discount for any remaining debt. Those that provide secured debt may not be as motivated to provide a discount but, many will attempt to provide options. For example, a mortgage company may offer a moratorium if the individual can prove a significant hardship that caused the delay in payments.

Filing for Bankruptcy

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Although there is often a stigma associated with filing for bankruptcy, it is sometimes the final option for individuals to gain control of their finances. If your debts are mounting or creditors have begun harassing you in the collection process, it may be time to consider bankruptcy. Bankruptcy is a legal process that requires a lot of information to be provided, as well as a court hearing. An attorney is often the best option for this lengthy and complex process. Many people considering bankruptcy are unsure when to consult with a Kentucky bankruptcy lawyer. However, this should be done before making that decision. The attorney can help go over your finances and offer advice as to whether bankruptcy is the best option for you or not. They will also help to determine which type of bankruptcy would be best for you to file.

Types of Bankruptcy

There are two types of bankruptcy typically available for individuals in the USA. One is the Chapter 13 bankruptcy, the other is Chapter 7 bankruptcy. Determining the right type of bankruptcy depends on your income and individual situation. There is a means test that must be used to determine if one qualifies for the chapter 7 bankruptcy option. For some, choosing chapter 13 may be a better option even with a lower income due to personal possessions. An attorney will examine your income, properties, and debts to determine the best type of bankruptcy for you.

Chapter 13 Bankruptcy

This type of bankruptcy is often referred to as the “wage earner’s bankruptcy.” Chapter 13 bankruptcy is an option for those with a regular income to develop a repayment plan for their debt. In general, individuals provide all their income and debt information to the court for review. A plan is created that allows the individual to make payments on this debt in instalments over the next three to five years. These instalment payments are in affordable amounts to help ease the burden on the filer. After the repayment terms are concluded, the remainder of the debt can be discharged.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is an option for those with little or no income. Many people face this type of bankruptcy due to loss of work or serious illness. In this type of bankruptcy, individuals can have most or all of their debt discharged at the end of the process. The bankruptcy means test is required to determine if the individual is eligible for this type of bankruptcy. Those who fall within the median income pass the means test. For those above that, their income and expenses are considered to determine if they qualify. It is important that all information about income and expenses be complete and error-free or the case was thrown will be out. An attorney is very beneficial in assisting with this process.

Conclusion

Debt is a serious problem that many people face, so you are not alone in this predicament. Major life changes or unexpected incidents happen to people all of the time and these situations invariably result in debt becoming unmanageable. Fortunately, there are steps that can be taken to gain control of debt. As we’ve shown in this article, many companies are willing to work with individuals to help in this process. However, if filing for bankruptcy becomes the last resort, getting assistance from a bankruptcy lawyer is essential to ensure that the case is processed properly. Once the process is complete, you may have a harder time getting credit due to the bankruptcy reflecting on your credit profile report. However, you will no longer be overwhelmed by your current debt, so this may well provide an opportunity for you to gain a fresh start and obtain financial freedom in your life.

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