Bankruptcy is a legal procedure to help people release themselves from debt, and it’s no easy feat. It is initiated when a debtor presents the bankruptcy petition to a court in the US. During this process, the debtor’s assets are sold, and the proceeds are given to their creditors.
One is declared bankrupt when they cannot pay their debts and have no way out but to sell all they own to pay off their creditors. If you have less significant equity in your house and are having a hard time paying all the mortgages, you may have the option of filing for bankruptcy to get out of it. Continue reading to find out if you can go bankrupt without losing your house.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a legal form of bankruptcy that individuals and businesses use. It involves the liquidation of some assets as well as debts to pay off the creditors. Under this chapter, all your non-exempt assets will be sold and given to your creditors so that you can start afresh with a clean slate after paying back whatever money is due to them. You get to keep most of your exempt assets.
This bankruptcy chapter, however, is good for people who are up to date with their mortgage payments. It does not include a repayment plan; hence you will have to pay off everything. When you file under this chapter, you can no longer own any assets because they will be sold and given away to pay your creditors. Before filing, you also need to understand that your credit score will be negatively affected based on your history.
Eligible People for Chapter 7 Bankruptcy
Chapter 7 bankruptcy is ideal for people who don’t want to lose their assets. It’s also good for people with debts that are not too high and are up to date with their mortgages. The following people can be eligible for this form of bankruptcy;
1. You must complete the debt counseling course before filing for bankruptcy.
2. You must have filed a chapter 7 bankruptcy within the last eight years.
3. If your case was dismissed, you must wait at least 181 days before filing another one.
4. You must pass the financial scrutiny test of the court.
5. You must not have filed a chapter 13 bankruptcy test within the last 6 months.
Indications That You Need to File a Chapter 7 Bankruptcy
There are many indications that you should file a chapter 7 bankruptcy. This is because they show that you have too high debts and can use your assets to pay off your creditors. These indicators include:
1. Even at extreme measures, it would take an equivalent or more than five years to pay off the debt.
2. Stress results from debt affecting your relationships and other vital aspects, such as lack of sleep and poor concentration.
3. You have unsecured debts that exceed half of your annual income.
4. Your income is less than what your bills cost.
5. You don’t have any disposable income, even on a tight budget.
Advantages of Filing for Bankruptcy
Filing bankruptcy has several advantages, which include the following;
1. During the process, you can get rid of your debts.
2. You could also get a fresh start with a clean slate.
3. You will be forced to exercise discipline when managing your finances.
4. You can get rid of other debts that you may have, such as late charges, overdraft fees, and so on.
5. Under the process, you will be able to keep some of your assets which will be used as collateral to pay off what is owed to your creditors.
6. It reduces the pressure of liquidation, which means you will have to sell all your assets to pay off your creditors.
Disadvantages of Filing for Bankruptcy
Filing for bankruptcy may have some disadvantages, which include;
1. It will negatively affect your credit score, lasting almost 6 years.
2. You will lose your credit cards, making it difficult to get a loan.
3. You may have to wait a few months before you access a mortgage
4. A trustee will control your finances for a few years.
Bankruptcy is a financial tool that can help you get out of debt if you are in a situation where you are unable to pay off your creditors. It is an option that is helpful to clear up debts which will make it easier for you to manage your finances. If you have less significant equity in your house and are having a hard time paying all the mortgages, you may have the option of filing for bankruptcy to get out of it. However, it would be best to be careful when choosing the option to avoid unnecessary complications.