Most of us feel it’s a moral obligation to pay what we owe – as long as we are able to do so. However, when people reach the point of considering whether to file for bankruptcy, they are usually overwhelmed by debt.
Many people will try to chip away at the balance even when there’s little chance they can repay all their outstanding debts. Doing so may prolong harm to their credit score and keep them from saving money they desperately need for retirement.
When should I consider Chapter 7?
Bankruptcy is often the best way to restore a person’s credit and financial freedom when their consumer debt totals more than half of their yearly earnings, or if it would take five years or longer to pay off that debt even with careful budgeting.
Chapter 7 bankruptcy can erase many kinds of debt, including credit card balances, personal loans, medical bills, past-due rent and utility bills, business debts and some older tax obligations. Debts like child support and recent taxes can’t be discharged, and student loans can be difficult to erase.
Other benefits to consider
Bankruptcy is a complicated process, so consulting an experienced bankruptcy attorney is crucial to avoid paperwork mistakes that can cause cases to be dismissed. That can be a double whammy as no debt relief is experienced while the filing still damages your credit score. However, a knowledgeable lawyer can help you reap other benefits, such as:
- Ending collection nightmares: Filing for bankruptcy includes an automatic stay, which halts collection efforts by creditors and agencies, including aggressive phone calls from bill collectors.
- Restoring credit access: While it might take a few months after filing, people completing the bankruptcy process typically can open new lines of credit within 18 months. Limits will likely be low at first but will increase as your credit improves.
Don’t wait for an assessment
Many people make the mistake of draining their retirement accounts or other assets that could have been protected from creditors in bankruptcy. If you face overwhelming debt, talking to an experienced lawyer as soon as possible is crucial for your long-term financial health.