When you’re in over your head with debt, everything seems overwhelming. It takes over your life in many ways. In fact, according to Health.com, it affects both your physical and mental health. In a 2014 article by Amanda MacMillan, those with greater debt were shown to have higher blood pressure, which can lead to heart disease, as well as anxiety and depression. In addition, because of the stress that comes with debt issues, it is thought that it could possibly be a contributing factor to a suppressed immune system, the article adds. Declaring bankruptcy can be a solution to a clean slate, but it does not come without consequences. If you feel this is the route for you, you’ll need to know how to navigate your way through bankruptcy.
In today’s article, I discuss what you need to know about the process so you can determine if it’s the right choice for you.
How to Navigate Your Way Through Bankruptcy:
- Understand what filing means. Before looking into this as an option, you should understand what filing for bankruptcy implies along with what type of debt you have. For instance, your credit card debt may be wiped clean, but your student loans and secured debts would not qualify.
- Note: Only in cases of extreme hardship will your student loans even be considered, and even then, it is highly unlikely.
- Determine what brought you here. If you do need to file for bankruptcy, think about what actions have brought you to this point. From paying monthly bills late to using credit cards to pay off other credit cards, you need to be able to recognize where the problem stems so that you can take steps to avoid this situation in the future.
- Contemplate filing when facing home foreclosure. Filing for bankruptcy when facing home foreclosure can actually help protect you from foreclosure proceedings. And, as reiterated in this AllLaw.com article, you will want to do so before foreclosure rather than after. This will save up some time for you to work with your mortgage company to work out a loan modification or refinance so that you do not lose your home. If you file after, the article states, you run the risk of not having your tax debt eliminated, not to mention it won’t prevent creditors from pursuing collection activities.
- Consult with a personal bankruptcy attorney. It is best to always consult with a professional when possible, and many provide the first meeting at no charge. By doing so, you should at least obtain enough information to know what will be best for you or how they may even be able to help file in the case of a home foreclosure threat (as mentioned above).
- Although paralegals are well-educated and professional, they cannot give legal advice legally, which means you may not get the answers you need. This is why an attorney will be a better choice.
- Be leery of information from bill collectors. Some bill collectors may try to steer you in the wrong direction by telling you that regardless of your filing for bankruptcy, you’ll still have to pay them. However, they are likely misleading you in an effort to be paid. Most of your bills will be covered depending on the bankruptcy option you file.
- Stop paying bills that will be eliminated (but don’t run up all your credit cards). While you should stop paying on the debt that will be discharged, you should not exhaust all the money on your credit cards during this process. This looks bad to the judge working on your case and will hurt you in the long run. Instead, save money from the bills you’ll no longer have to worry about and pay toward the other bills that will remain.
- Immediately start working on building your credit. Depending on the type of bankruptcy you file for, your credit may or may not be affected for up to ten years. When you file Chapter 7 bankruptcy, it likely will stay on your record for ten years; however, you can still work on reestablishing your credit. Pay bills on time or in advanced as up to 35% of your report is calculated based on payment history. There are other ways you can put yourself in good standing, which you can read about here. Additionally, make sure after then ten year mark that you contact the credit reporting agencies with your discharge notice to ensure they remove this from your record at that time.
The above are just a few ways how to navigate your way through bankruptcy, but hopefully, you only consider this route as a last resort. Make sure you reach out to friends and family to explore your options as it will be important to have a strong support system during this time, especially with how financial stress can affect an individual in more ways than one.
Have you ever had to file for bankruptcy? What was your experience?