With the COVID-19 pandemic, a lot of people are starting to feel the effects. Bills are piling up, you are out of work and stuck at home. While thinking of how to get out of financial debt, you and others have thought of filing for bankruptcy.
Bankruptcy is a legal process that helps people get out of debt and get a fresh start. Moreover, bankruptcy can stop foreclosures and any other legal actions against you due to debt problems. It will even stop creditors from continually calling, and demanding for payments. Breathing space is the ultimate advantage of filing for bankruptcy.
However, before you take this giant step, there are several things you need to know about the process and outcome. You will definitely need help, it can be a very long process, and it is not always secure agreements. Moreover, you may not get everything you want. Before you file for bankruptcy, here is what you need to know.
- Bankruptcy Affects Your Credit
If your credit score is good, then you may want to hold off on filing for bankruptcy. This is because bankruptcy filings will appear on your credit reports. This wipes out any good history of credit and may last on your score for the next ten years or so. Moreover, you will have to declare your bankruptcy filing when you apply for a new job or a loan. You may have to do it for at least a decade until your credit score is better.
- Some Debts Won’t Go Away
If you think filing for bankruptcy is the cure for all your problems, then you should know that not all your debts will go away. Bankruptcy will not solve all your financial questions because some debts cannot be discharged. For example, your back taxes and child support will still be valid debts even after you file for bankruptcy as is alimony, real estate liens and certain luxury items. Student loans also stay valid unless your financial situation is too severe. In this case, a judge may rule that you do not have to repay your student loans.
- Bankruptcy Is Not Free
It comes as a surprise to many people that bankruptcy is not free. One of the highest cost is hiring a lawyer to help you throughout the process. Lawyers tend to bill by the hour, so your costs are likely to add up fast if your case is complicated. Moreover, you may have to pay court fees.
It would be best if you also kept in mind that the cost of filing for Chapter 13 bankruptcy is naturally higher than the price of filing for Chapter 7 bankruptcy. This is because the process is long and stretched out over several years.
There are several long-term but non-monetary costs that may not be clear for the beginning. If you are filing personally, your credit score will be the ultimate price to pay. You will struggle to get loans or gain access to credit for up to ten years. This is a definitive blow if you are planning to start a business or buy a home soon.