Of course, bankruptcy is your last resort. It is tough but provides a legal remedy for your financial situation.

Bankruptcy is a 3-step process:

1. You must first file in federal or state court saying you are “insolvent” – meaning you have no cash or assets (things you can sell) to pay your bills.

2. You have to arrange a repayment plan with creditors and the court.

3. You “discharge” – meaning settle your debts with creditors for usually a lower amount than the original bill. This gives the creditors some of their money back.

Pros and Cons:

Pros:

1. Legal protection from creditors
2. Takes care of most of your debt
3. You may get to keep your home
4. May stop financial ruin
5. Enables a fresh start

Cons:

1. Bad Credit
2. Still have to pay some debt
3. Have to go to court
4. May loose your assets
5. Loss of privacy (usually they print your bankruptcy in the paper)

What if I don’t file bankruptcy – what could happen?

Bad credit rating – making it hard to ever borrow again

Creditors may sell your property you put up as collateral – like your car or house

Lawsuit – and if you lose, you’d have all the legal costs from both sides plus your bills

Garnishment – your wages could be garnished up to 10% to pay creditors

Types of Bankruptcy

Chapter 7 – straight bankruptcy

This is when you sell everything and pay back creditors. You can keep your house, but must pay taxes, alimony, fines, and student loans.

Chapter 13

This allows you to keep your stuff, but the court appoints a trustee to help you with your wages and pay back your creditors usually within a 3 to 5 year window.

Hopefully, this information has helped your situation, but please, it is always smart and sometimes required by law, to consult with an attorney before filing.

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