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.
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