Bankruptcy - Occasionally, there are times
when people or businesses run into severe financial
troubles. When put to paper, it seems as though they cannot
manage to continue to make necessary payments on their current
income. For many, bankruptcy seems to be the only way
out. But bankruptcy should only be the option of last
resort.
Credit collections vs.
bankruptcy
In such cases, creditors often
resort to a variety of collection methods, usually starting with statements
and letters that require your response. These letters are
generally somewhat threatening and the purpose is to get you to
pay their bill. Keep in mind that many creditors lose
large sums of money to bankruptcy proceedings and they often want
to collect early before you start thinking of bankruptcy as an
alternative.
Most creditors will seek to get
you to pay the bill until such time that they have run out of
non-legal options and then turn it over to a collection agency who
promises to ruin your credit or take you to court and seek a judgment
against you.
Types of debt
Where the debt is owed on secured
property such as real estate or cars, they will often seek to
reclaim (or repossess) that property, meaning that you are
required to turn the property over to them and your property
rights are terminated.
Other debts such as credit card
bills, doctor bills, store credits and other similar debts are
generally not secured. Though they may not be able to
repossess any specific asset, this doesn't stop the creditor from
seeking restitution through the court and they may be able to have
other assets seized and sold in order to pay the debt.
You are granted many rights as a
debtor and one of those rights is to declare bankruptcy. In
declaring bankruptcy, you are stating for the court that you don't
have the capability to pay your bills with your current income.
Bankruptcy is the last resort
Bankruptcy sounds rather easy at
first. Filling out the bankruptcy paperwork and going to court won't
cause to many problems as long as the procedures are followed and
you have been quite thorough.
In many cases, the relief of the
immediate aftermath of filing for bankruptcy can also make your life quite a bit
easier. If you have been hounded by collection agencies and
merchants, the mere filing of the bankruptcy forms causes them to
cease contacting you or any other action that they may be taking
against you. In other words, they cannot sue you or take
your property once you have filed for bankruptcy. Though
secured creditors don't give up their rights indefinitely, they
too must stop all action.
Post bankruptcy issues
The part that may cause a problem
is what comes after you file bankruptcy. In fact, your
credit is ruined. Merchants that do a credit check on you
know that you cannot pay your debts and cannot in the near
future. Most are unwilling to extend any credit to you for
any reason.
Though you may not want
additional credit now, filing bankruptcy can follow you for years
to come, even once your income improves. You will probably
be paying cash or very high interest rates for/on any purchases
that you make for the next 7-10 years. That's why you should
examine any alternatives that are available to you before you file
for bankruptcy.
