Guide Are You Considering Bankruptcy

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Just as bankruptcy can hinder your ability to obtain unsecured credit, it can make it difficult to get a mortgage, as well. You may find lenders decline your mortgage application, and those that do accept it may offer you a much higher interest rate and fees. You may be asked to put up a much higher down payment or shoulder higher closing costs.

Rather than give up your home and try to get a new mortgage after bankruptcy, it may be better to reaffirm your current mortgage during bankruptcy proceedings. You would be able to keep your home, continue paying on your current mortgage — free of other debts — and stay in your current home.

You Are Not Bankrupt!

When you're struggling with unmanageable debt, bankruptcy is just one solution; there are others to consider. Most will also affect your credit, but probably not as badly as a bankruptcy — plus, these alternatives can allow you to keep your property, rather than having to liquidate it in bankruptcy proceedings. Be aware that whenever you fail to honor the debt-repayment terms you originally agreed to, it can affect your credit.

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That said, bankruptcy will still have a more significant negative impact on your credit than will credit negotiation, credit counseling and debt consolidation. Whenever you fail to repay a debt as you originally agreed to, it can negatively affect your credit. Some types of debt relief come with consequences that are more damaging and long-term than others.

Before you make any decision about debt relief, such as declaring bankruptcy, it's important to research your options, get reliable advice from a qualified credit counselor, and understand the impact your choices can have on your overall financial well-being. Regardless of what type of debt relief you choose, you can begin taking better care of your credit immediately by putting simple, responsible, credit-positive actions into practice such as:.

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How to go bankrupt. Guide to the process

Bankruptcy Basics Bankruptcy can be a complex process, and the average person probably isn't equipped to go through it alone. Chapter 7 Bankruptcy Chapter 7 bankruptcy, also known as "straight bankruptcy," is what most people probably think of when they're considering filing for bankruptcy.

Chapter 13 Bankruptcy Chapter 13 bankruptcy works slightly differently, allowing you to keep your property in exchange for partially or completely repaying your debt. Bankruptcy Terms to Know Throughout bankruptcy proceedings, you'll likely come across some legal terms particular to bankruptcy proceedings that you'll need to know. Here are some of the most common and important ones: Bankruptcy trustee : This is the person or corporation, appointed by the bankruptcy court, to act on behalf of the creditors.

He or she reviews the debtor's petition, liquidates property under Chapter 7 filings, and distributes the proceeds to creditors. In Chapter 13 filings, the trustee also oversees the debtor's repayment plan, receives payments from the debtor and disburses the money to creditors. Credit counseling: Before you'll be allowed to file for bankruptcy, you'll need to meet either individually or in a group with a nonprofit budget and credit counseling agency.

Once you've filed, you'll also be required to complete a course in personal financial management before the bankruptcy can be discharged. Under certain circumstances, both requirements could be waived. Discharged bankruptcy : When bankruptcy proceedings are complete, the bankruptcy is considered "discharged. Under Chapter 13, it occurs when you've completed your repayment plan. Exempt property: Although both types of bankruptcy may require you to sell assets to help repay creditors, some types of property may be exempt from sale.

State law determines what a debtor may be allowed to keep, but generally items like work tools, a personal vehicle or equity in a primary residence may be exempted. Lien: A legal action that allows a creditor to take, hold and sell a debtor's real estate for security or repayment of a debt. Liquidation: The sale of a debtor's non-exempt property.

The sale turns assets into a "liquid" form — cash — which is then disbursed to creditors. Means test: The Bankruptcy Code requires people who want to file Chapter 7 bankruptcy to demonstrate that they do not have the means to repay their debts. The requirement is intended to curtail abuse of the bankruptcy code. The test takes into account information such as income, assets, expenses and unsecured debt. If a debtor fails to pass the means test, their Chapter 7 bankruptcy may either be dismissed or converted into a Chapter 13 proceeding.

Reaffirmed account: Under Chapter 7 bankruptcy, you may agree to continue paying a debt that could be discharged in the proceedings. Reaffirming the account — and your commitment to pay the debt — is usually done to allow a debtor to keep a piece of collateral, such as a car, that would otherwise be seized as part of the bankruptcy proceedings. Secured debt: Debt backed by reclaimable property. For example, your mortgage is backed by your home, and for an auto loan, the vehicle itself is the collateral. Creditors of secured debt have the right to seize the collateral if you default on the loan.

Unsecured debt : A debt for which the creditor holds no tangible collateral, such as credit cards. Debt That Can't Be Forgiven While bankruptcy can eliminate a lot of debt, it can't wipe the slate completely clean if you have certain types of unforgivable debt.

Types of debt that bankruptcy can't eliminate include: Most student loan debt although some members of Congress are working to change this. Court-ordered alimony. Court-ordered child support. Reaffirmed debt. A federal tax lien for taxes owed to the U. Government fines or penalties. Court fines and penalties. Consequences of Bankruptcy Perhaps the most well-known consequence of bankruptcy is the loss of property.

Become Debt FREE

Getting a Credit Card or Loan after Bankruptcy Bankruptcy information on your credit report may make it very difficult to get additional credit after the bankruptcy is discharged — at least until the information cycles off your credit report. Getting a Mortgage After Bankruptcy Just as bankruptcy can hinder your ability to obtain unsecured credit, it can make it difficult to get a mortgage, as well.

Bankruptcy Alternatives When you're struggling with unmanageable debt, bankruptcy is just one solution; there are others to consider.

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  • If you can pay your bills, obviously you should. But bankruptcy may be the best option if your consumer debt — the kinds listed above that can be erased — equals more than half your income, or if it would take you five or more years to pay off that debt even with extreme austerity measures. Your local bar association may be able to direct you to attorneys willing to take on some pro bono cases.

    Raise cash the smart way : Trim unnecessary expenses, if you still have any. Another option is to borrow from friends and family. Working a second job can be problematic if you boost your income above the median for your area, since that complicates your filing. Discuss your options with an attorney; many offer a free or low-cost initial consultation. The reality for most is quite different. Some drain assets, such as their retirement accounts, that could have been protected from creditors in bankruptcy.

    Financial Rights Legal Centre - Advice and advocacy for consumers in financial stress.

    People throw good money after bad until they have no money left to seek relief. What's next? Want to take action? Assess where you stand on debt Want to dive deeper? Take a quiz: How healthy are your finances? Want to explore related? Consider other ways to find debt relief. At NerdWallet, we strive to help you make financial decisions with confidence. To do this, many or all of the products featured here are from our partners.

    Our opinions are our own.