Expert Debt Management
Expert Debt Management
Bankruptcy is not a pretty picture, it is basically the end of the rope for someone who's debts have completely overtaken them. Bankruptcy causes creditors to legally stop trying to pursue debts owed to them from you. It essentially eliminates any debts owed. Those who are hopelessly burdened with debt can get their debts wiped away. Sometimes this becomes the only way out of a grim financial situation. What claiming bankruptcy does is gives you a clean slate to start from. This actually seems to be a relatively popular option for some. But not so fast, there are downsides obviously for claiming such a thing. Your bankruptcy will stay on your credit report for up to 10 years.
You may be able to get a mortgage during this 10 year period from a lender but it will end up costing you more than the average person. Your credit has been damaged and no lender will take the same risk with you as with people who do not have a bankruptcy on their report. Perhaps you take out a mortgage loan for $300,000. You will be paying a higher interest rate than what you would have without the bankruptcy on your report.
For arguments sake lets say instead of the 6% the normal person would be paying you have to pay 8.5%. Now this seems rather reasonable to you considering your past, but lets look at the real cost difference. A $300,000 mortgage loan could cost you $1933 per month for 25 years at 6%. The same amount paid at 8.5% could cost you $2415 per month. The difference is over $144,000 over the life of the mortgage. So you see, bankruptcy can really cost you in the long run.
There are 2 different types of bankruptcy. One is Chapter 7, the other Chapter 13. Chapter 7 is sometimes referred to as "Straight Bankruptcy" It is essentially a liquidation process. Basically the debtor gives over non-exempt property to whomever is processing the bankruptcy and they then sell it off to pay the creditors what they can. Usually the debtor does not have assets left so this approach gives the person a quick new slate.
Chapter 13 bankruptcy is for those who want to pay off their debts over 3 to 5 years. This is good for those who have non-exempt property but wish to keep it. It is often common for one who has a steady job with reliable income. Most people do not claim chapter 13 because you still end up paying most of it back as well as you have the bankruptcy tag on your credit report.
If you are considering bankruptcy, consider first the implications this will cause for you. Many feel there is no other choice with creditors breathing down their neck however, in many cases there are alternatives, such as debt consolidation. It is best to educate yourself in these matters before just opting for bankruptcy. Also there are such a thing as bad credit personal loans that can assist in times where bankruptcy seems inevitable.
If the bankruptcy is unavoidable you can do a few things to reduce its effects. It will affect quite a few things in your life including your credit score which in term will affect your ability to open a bank account, get credit and find affordable auto insurance rates. For example, you can buy annual car insurance for all your vehicles just before the bankruptcy. This way, you will fix your rates for at least one year. After that it is likely that your credit score will hit the rock bottom and your premium will increase at renewal.
Another problem is of course to find for keeping your automobile. When you are bankrupt all your assents will be seized to pay for your debts. However, a few people manage to keep their cars because they cannot keep their jobs without having access to a car. This is something you have to think about and see if it is feasible and you will be allowed to keep it. Even you have access to your partnerís car as a listed driver it is still a good idea to arrange a long term car insurance before bankruptcy.
Disclaimer: This site is not , nor should it be taken to be, legal, financial or other professional advice. It merely provides a generalized guidance and generalized information only. Consult a financial advisor or an attorney to discuss any legal or financial issues involved with credit and debt decisions.
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