Basics of Bankruptcy: When Should You File for One?

Debt text on a calculatorThe word bankruptcy brings about the image of destitution and misery. Its true meaning isn’t far behind. Declaring bankruptcy means you cannot repay your outstanding debts. According to the American Bankruptcy Institute, there were 38,436 commercial bankruptcies filed in 2017.

But, how much debt do you have to be in before you can file for bankruptcy?

No Minimum Debt

There’s no minimum debt required before you can file for bankruptcy. The decision to file for one can be prompted by unforeseen situations such as sudden unemployment or enormous medical expenses, to name a few. But you have to keep in mind that declaring bankruptcy will reflect negatively on your credit history.

If you find yourself being sued by debt collectors and can’t pay your bills no matter what you do, it might be time to declare bankruptcy.  According to utahdebtcare.com, doing so will give you legal protection against creditors suing you. This is called the automatic stay, and it prevents them from repossessing your property to collect debts.

Types of Bankruptcy

There are two common types of bankruptcy for individuals and companies. These are the Chapter 7 and Chapter 13 bankruptcy.

When you file for a Chapter 7 bankruptcy, any property you own that is not included in the bankruptcy exemption will be liquidated by a trustee to pay off your debts. If you don’t have any valuable assets, you won’t be able to repay your debts, but you’ll still be considered debt-free after four months. However, for you to be eligible to file for a Chapter 7, you must have little to no disposable income.

If you want to keep all your properties, you may file for Chapter 13 bankruptcy. Doing so will get you a debt repayment plan that will last three to five years. Chapter 13 is a systematic and affordable way to repay your debts according to the disposable income you have.

Being in debt is never a good position. It’s important to assess your finances regularly before your debt becomes too much of a burden and leads you to bankruptcy. Should you find no other recourse for your situation but to file for bankruptcy, these facts should help you determine which one.