OK, so everything you’ve tried to fix your financial situation has proven fruitless. You’ve exhausted every debt resolution strategy. Debt is stacking up and your income isn’t able to cover your expenses.
It’s becoming obvious that meeting your financial obligations while maintaining any semblance of a life is going to be impossible. The only thing left to do is file for bankruptcy protection.
Wholly aware of the stigmas attached to that decision, it’s fair to wonder if bankruptcy is a financial death sentence.
Well, let’s take a look.
Sometimes You Just Need a Break
The good news is filing for bankruptcy protection gives you the next best thing to a clean slate upon which you can start to write your future over again. We say ‘the next best thing’ to a clean slate because certain types of debt are exempt from bankruptcy proceedings.
These include federal student loan, child support, spousal support and tax bills. However, pretty much everything else is fair game. This “reset” — if you will — can give you some breathing room to pull yourself together and start over again.
You Won’t Have to Give Up Your Home or Your Car
Certain items you own are exempt from bankruptcy proceedings as well. Your primary residence (as long as the mortgage is in good standing) cannot be taken away from you. You can be ordered to liquidate vacation properties, but rental property, if it generates a significant aspect of your income, is exempt as well.
Nobody can take your car from you, as long as the payments are current. Again though, any cars you have above and beyond what you need for your personal transportation and/or business use can be liquidated to pay creditors. But the point is you won’t be left homeless, or without transportation.
And yes, your clothes and jewelry are usually safe as well.
You’ll Get a Credit Counselor
While this might sound invasive at first, it’s actually a significant benefit. After all, if things went sideways badly enough to force you into bankruptcy, it’s a good idea to consult a professional to help you keep things on the rails when you start over.
If you’re wondering what is bankruptcy, it’s important to recognize it isn’t an admission of weakness, ignorance, or ineptitude — it’s just accepting some badly needed help.
You Can Subsequently Get Credit
You might be surprised to find your mailbox filled with offers of credit in the months following the discharge of your debts. There is a class of lenders out there specializing in working with people who have gone through bankruptcy proceedings.
After all, anyone who just got a lot of debt discharged probably now has some disposable income. They know you can’t file for bankruptcy protection right away again, so it’s a pretty safe bet they’ll make a profit from lending to you. Further, they know they can charge you a high interest rate because “normal” lenders are not likely to want to work with you.
Be More Careful This Time
As uncomfortable as it can be, you will feel a sense of relief after everything is done and your debts have been discharged. This is the time to reflect upon what just happened to you.
Be honest with yourself about why it happened and put measures in place to minimize the possibility of a repeat. Going forward, make every effort to:
- Pay your bills on time every month.
- Review your credit report at least once each year — ideally more often.
- Establish and adhere to a spending plan.
- Use credit as little as possible and always pay balances in full each month.
Bankruptcy is not a financial death sentence. But it should definitely be awake up call if you’ve been cavalier with your finances.