The coronavirus will undoubtedly render millions of people bankrupt. However, declaring bankruptcy is not as straightforward as most assume. Declaring bankruptcy requires the completion of an abundance of paperwork, the services of an attorney and attendance at legal hearings. This means filing bankruptcy costs money, chews up time and temporarily destroys your credit rating. Below, we provide a look at the most important things to consider when determining whether bankruptcy is a viable option for your unique financial situation.
Consider the Aggregate Impact of Bankruptcy
Most people are surprised to learn their retirement savings in IRAs, 401ks and ERISA accounts are not impacted by bankruptcy. Since money is not pulled from these accounts to pay monthly bills, they are not impacted when bankruptcy is declared. So don’t drain your retirement savings prior to declaring bankruptcy. Such an action would trigger an onslaught of taxes and penalties that will linger on as black marks on your credit score across posterity. Furthermore, declaring bankruptcy makes it quite difficult to obtain loans in the future, meaning you might be a lifelong renter.
The Scura’s attorneys specialize in bankruptcy and recommend to take a look at your credit report two months after your bankruptcy case culminates to see if there are any errors. If you spot any mistakes, request that they be corrected as appropriate. Watch your mail closely after filing for bankruptcy. The court should provide legal paperwork to be signed by a specific deadline. If you do not have such paperwork, your case will be stuck in limbo. Review these documents down to the smallest of details to ensure they are accurate prior to signing them.
Consider the Cost of Bankruptcy
The bankruptcy process typically requires the payment of fees to the court, the government and the attorney. This means you will likely spend a thousand dollars or more to file bankruptcy. The Insolvency Trustee is responsible for determining the total amount of the filing. This professional’s charge is determined by the Office of the Superintendent of Bankruptcy. Be particularly mindful of the law firm you select for your bankruptcy. Some unscrupulous firms will bill fees yet outsource the work without actually doing anything to justify the cost of the bankruptcy filing. Read the reviews of prospective attorneys before committing to one. If it turns out the bankruptcy costs are in excess of your financial means, reach out to a licensed Insolvency Trustee for assistance.
Bankruptcy Can Be Quite Liberating
Federal law governs bankruptcy so the process to declare this financial destitution is similar in all states. The negative consequence of bankruptcy is a serious credit score reduction. The positive result of filing bankruptcy is a fresh financial slate that provides a launching pad to rebuild credit. A rebuilt credit score will qualify you for a reduced interest rate that sets the stage for financial success in the years ahead.
Understand the Differences Between Trustees and Attorneys
Bankruptcy attorneys have an in-depth understanding of the law, particularly insolvency law. Trustees are officials licensed by the federal government to work with matters of insolvency. Many trustees are also accountants.
Understand When It Is Sensible to File for Bankruptcy
If you are insolvent or unable to pay debts, do not assume bankruptcy is the best possible solution. It is quite possible you would be better served creating a payment plan with the assistance of your creditors to make good on a portion of your debt owed rather than filing for bankruptcy and ruining your credit for years to come. Furthermore, declaring bankruptcy does not mean student loans and unpaid child support will disappear from your financial record. Oftentimes, people don’t know that they can refinance their student loans. One of the benefits of refinancing your student loan is that you can pay off your debt faster because a greater amount of your payment goes toward the principal rather than interest, which means that refinancing can help students pay off their debt ahead of schedule. These debts will linger while those that can be discharged will be erased.
Consult With Experts Before Making a Decision
Do not make a decision pertaining to bankruptcy until you have met with a credit/debt counselor to determine the most prudent course of action. A professional’s guidance will ensure you make a truly informed and educated decision that sets the stage for financial success in the years ahead.