In this modern age debt is a normalcy for many consumers, a way of life. However debt is not always good. Sometimes consumer borrow more than they can repay. When people are struggling with debt, they seek options for debt relief and quite often consider bankruptcy. However, even when faced with this option the lingering question usually remains, is bankruptcy a good option? Bankruptcy refers to the legal process or course of action taken by a consumer to free themselves from debt when they are unable to repay the said debts. Bankruptcy is a last resort option that allows people struggling with debt to start over by legally getting rid of their debt.
So is bankruptcy a good option for you?
Bankruptcy exists to save consumers who are in dire need of debt relief. It is reserved for those who have had spending and borrowing problems to a point where they cannot meet their debts and have no other alternatives. The question arises, “When is bankruptcy a good option?” Bankruptcy is only the best option when a consumer has totally no other alternatives to get out of or get rid of their debt. It is a last resort as it could lead to stigma from creditors and lenders as it causes consumers to lose their creditworthiness. The biggest benefit of declaring bankruptcy is getting your debts forgiven. Bankruptcy can make your debts be legally waived, a good example being when you can’t pay your bills.
What is and what isn’t included in Bankruptcy?
Upon filing for bankruptcy a court order is included. This automatic stay is issued to keep creditors and lenders from making collections on what you owe them and stop creditor harassment. It also temporarily stops foreclosure repossession and eviction. Clear guidance should be given to determine, “Is bankruptcy a good option to foreclosure”? In some cases, the stay can only temporarily stop a foreclosure or repossession. If payments on the accounts are not made current a consumer stands to still lose the property. In other cases a mechanism has been put in place to enable consumers catch up on past payments enabling retention of the property. The consumer is also allocated a credit counsellor to help them explore alternatives, negotiate with creditors and make an informed decision. The existence of bankruptcy exemptions means declaring bankruptcy doesn’t make you lose all your assets. There are also laws to protect consumers who have filed for bankruptcy from getting in trouble with employers. However, consumers should be wary as it doesn’t waive all debts.
What are bankruptcy alternatives?
Before filing, it is advisable for the consumer to ask themselves, “Is bankruptcy a good option for me?” Bankruptcy can be detrimental to your credit score, hence it’s better to look for alternatives before filing for bankruptcy. These alternatives may be more costly and time consuming but could save your credit score and enable you quickly rebuild a good credit report. One alternative to bankruptcy would be liquidating and selling some of your assets, such as jewellery and furniture to pay off some of your debt. This should be done quickly to avoid falling behind on your payments. Limiting your expenditure and making budget cuts is another alternative to help you clear your debts over time. It goes hand in hand with increasing income by working more jobs, part-timing, and working extra hours. Talking to your creditors to help you avoid bankruptcy is also an alternative. Through a bankruptcy trustee a consumer can surrender their assets tor creditors in exchange for elimination of their debts. This is called a consumer proposal, a legally binding statement that offers lower monthly payments while allowing the consumer to retain their assets. Creditors prefer making money from you to getting nothing at all upon declaration of bankruptcy. There are also professional credit counsellors that have experience negotiating interest rates and payment with lenders and creditors. Enlisting their help in building a debt management program is a good alternative to bankruptcy.
Bankruptcy can be a financial olive branch when suffering through debt. However, alternatives should first be considered carefully, and it should only be used as a last resort to get out of debt. This is to avoid completely losing creditworthiness and to enable a consumer quickly rebuild their credit score. Laws have been put in place to make credit counselling mandatory before declaration of bankruptcy to make sure consumers make informed decisions. A competent analysis should be carried out to find out if bankruptcy is the best and only option before filing.