Nobody wants to go through financial hardship. Unfortunately, things may get out of hand, and a lot of people turn to bankruptcy as the nuclear option.
If you’re one of them, know that it’s not the end but a beginning to recovery. Still, it’s a huge decision to file for bankruptcy, so you must know what you’re getting into.
There are different types of bankruptcy, but the most common are Chapter 7 and Chapter 13.
There’s no minimum amount of debt required for you to file bankruptcy under Chapter 7 or Chapter 13. There’s also no maximum amount of debt when filing Chapter 7, but there’s a maximum amount set in Chapter 13 that varies each year.
Still, just because you’re late in your bills and your debt is mounting doesn’t mean that everybody can file bankruptcy. There are considerations to make and a bankruptcy test to pass.
If you have a spouse, think about how bankruptcy will affect your spouse. You can file for bankruptcy without your spouse under certain circumstances. It makes sense if you and your spouse keep your finances separate. But if you have joint debt and marital assets, you shouldn’t file bankruptcy without your spouse.
Think before you file.
Protecting Your Major Assets
When you file for bankruptcy, you’re at risk of losing your property. The bankruptcy trustee will sell your assets to pay your debt. These assets include your house and your car.
1. Keeping your house
In Chapter 7, you’re more likely to lose your assets because you claim that you don’t have disposable income to pay what you owe.
In Chapter 13, you can still keep your assets when you enter into a debt repayment plan. As long as you can keep up with your payments, you can keep your house.
If you’re facing foreclosure and you file for bankruptcy, it will temporarily stop the foreclosure proceedings. The court will issue an automatic stay, which prohibits all creditors from continuing with their collection efforts.
During the automatic stay, you can seek alternative measures to save your house. You can sell your other assets so that you can keep your mortgage payments updated.
People who lose their homes in bankruptcy are worried if they can buy a new one later. A bankruptcy on your credit report is a red flag, but it doesn’t make it impossible for you to buy a house.
While bankruptcy will stay on your report for 7 to 10 years, you don’t have to wait that long to buy a house, although it’s not easy to get approved for a mortgage.
The waiting period depends on the type of bankruptcy that you filed and the type of loan you’re looking to get.
2. Keeping your car
You can also keep your vehicle in a Chapter 13 bankruptcy. You need to meet the requirements for exemptions, or your bankruptcy must approve your request to enter into a repayment plan.
Learn more about your options if you want to keep your car in a Chapter 7 bankruptcy.
Reaffirming Your Debt
If you want to rebuild your credit, you don’t have to get your debt discharged through bankruptcy. You can go for debt reaffirmation to protect your properties from repossession.
In debt reaffirmation, you enter into an agreement with your lender that you will pay all your debt despite the bankruptcy. As long as you make timely payments, your assets are safe.
Filing Another Bankruptcy
If you’ve filed for bankruptcy before, can you file another one? How many times and how long do you have to wait? Technically, you can file as many times as you need. However, there are waiting periods after each bankruptcy filing. You can’t just file one bankruptcy after another right away, except when there’s no bankruptcy discharge in the previous filing.