What is bankruptcy?
Bankruptcy is the legal description for insolvency. When a person or organization cannot repay their debts, they can file for bankruptcy with the court in an effort to gain temporary or permanent relief. Reasons for filing personal bankruptcy are varied, but often focus on overextension of debt, medical costs or loss of a job.
There are two types of bankruptcies. Chapter 7, or liquidation, allows a debtor to give up all of their assets for discharge of their debt. Chapter 13, or debt adjustment, temporarily stops collection activities on accounts so the debtor can formulate a plan to pay back some or all debt obligations over a 3-5 year period.
Bankruptcy can be complicated. There are income limitations, time period restrictions and legally-required financial counseling prior to filing. Filing for bankruptcy will adversely impact your credit for 7-10 years. During that time, you begin the process of rebuilding your credit and typically will pay higher interest rates to borrow. Due to the complicated nature of bankruptcy, it is important to consult with a bankruptcy attorney for advice and guidance.
There are other options.
We understand that your family’s financial situation may seem impossible; however, bankruptcy is not your only solution. Bankruptcy does not forgive all debts, so depending on your circumstances, it may or may not make sense for you.
We recommend you consider an alternative solution that includes budgeting, saving and planning for your future. If you feel that you are overextended, speak with a professional. Contact a non-profit financial counseling service, such as Take Charge America or Consumer Credit Counseling Service. They will be your advocate. Professional counselors will review your finances, set up a personalized program and can even deal directly with your creditors at no cost to you.
Taking charge of your financial situation can protect your assets, your credit rating and your future financial security.
by Hemlata, AVP, Lending
Pacific Service CU cannot give legal advice. Please consult your legal advisor for details.