There was a time when we used to think of bankruptcy as the worst thing that could happen to us and as something that we should absolutely avoid at all costs. Of course it’s not ideal to declare bankruptcy no, and it’s something that many of us would much rather not have to do –
but if you are in severe debt and unable to pay it then declaring personal bankruptcy is an option and these days it’s a more and more common one to take that actually has several advantages to those in dire situations.
What Will Happen When You File for Personal Bankruptcy
There are two ways you can go into bankruptcy – either by choice or by force if a company deems you unable to pay back your loans. At this point the case will be decided in court and you may be declared bankrupt.
When this happens you will have outstanding debts to pay still, but the understanding will be that you are no longer able to pay them. Thus you will get debt restructuring in order to help you to pay off the loans that you still can and that will mean that interest rates get frozen, or that the overall amount you owe is reduced or that the repayment scheme is made more lenient. At any rate this will help you to pay back the loans without going further into debt. If that’s still not possible then the debt may be wiped entirely and the remainder will be paid off by the state (AKA the tax payer).
Of course before this happens all of your assets will be seized and sold and depending on the circumstances this may include your home. By the end you might not have much left, but at the same time you will be able to have a fresh start and it’s actually very liberating.
Doing it Right
If you are contemplating bankruptcy as an option then you need to make sure that there is no other way to pay your debt. While I’m telling you here that bankruptcy should be considered as a realistic option, that doesn’t mean it should be taken lightly and apart from anything else there is the moral consideration to bear in mind – you made an agreement and that is not the responsibility of the state to bail you out. There are many other options available to reduce debt whether you opt for debt restructuring, consolidation or transfer.
At the same time you also need to plan in advance how you are going to go about declaring bankruptcy and you should get bankruptcy advice to help you make the right arrangements. For instance it is important to use some form of asset protection such as a Swiss annuity or an IRA in order to avoid being left with completely nothing – and at the same time you need to think about how you might be able to repair your credit rating afterward, and this is something else you might want to get professional advice on.
Jen likes to write about personal finance and saving money. Her work with Graham Benson Bankruptcy Belleville Illinois has helped her change her own perception about bankruptcy.