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Bankruptcy is an unfortunate situation for families. In 2020, over 540,000 filings were sent to the courts. They were either used to create a payment program or to liquidate the debt. The process of bankruptcy and its reactions are hard to take. However, there are ways to prepare for the process to make it fairly painless. Here are some financial tips if your family has to file for bankruptcy.
Though not directly related to finances, your family’s mindset is still important. On one hand, you could believe bankruptcy is the start of your monetary collapse. On the other hand, your thoughts lead to feelings of inadequacy. Neither of these is true. First, as mentioned above, plenty of families file for bankruptcy. Most of the time this is due to unforeseen circumstances. Second, going through this process is actually a way to correct your finances and move forward.
Utilize The Services Of An Attorney
Technically, you could file a bankruptcy proceeding on your own. Though you do save some money on attorney fees at the start, you end up causing more bad than good. Especially when it comes to negotiating payment deals with your creditors. This is why it’s essential to engage the services of a bankruptcy lawyer in your vicinity or through a firm with great reviews. Most likely, they’ve previously dealt with the businesses where you owe money. Thus, they know who to contact to come up with a desirable solution for you.
Keep Paying Off Your Settlement
There are two bankruptcy choices for families: Chapter 7 and Chapter 13. The former is used to pay what is possible to your creditors through asset liquidation. Chapter 13, which is more common, allows you to reorganize your debt through consolidated payments. It’s a must to have the funds available for regular payments. If you stop working with the attorney and their agencies, then the bankruptcy is voided. Additionally, it doesn’t disappear from your credit report. It remains there for seven years whether it was completely paid or not.
Organize Your Paperwork
Once you calm down you need to start organizing your paperwork. These comprise overdue bills and letters to creditors. Also, provide information on your salary and what’s available in your bank accounts. Don’t hide any information. The goal of bankruptcy is to reorganize so you start on a fresh financial page. You shouldn’t have any secret bank accounts you keep for an emergency. During the approval process, that information could be discovered and result in a denial of action.
Understand What Debts Aren’t Discharged
Bankruptcy isn’t a clearing house for every debt you owe. Certain items aren’t discharged through the process. Among these are:
- Spousal and child support.
- Federal tax liens (though some state and local taxes are permitted).
- Debts related to willful or malicious actions against another party.
- Items not listed in your filing.
Generally, student loans can’t be added to a bankruptcy. However, if repayment causes undue hardship on your family, then you could file a separate adversary proceeding.
Create A Financial Plan
The idea behind bankruptcy isn’t to give you breathing room to start spending. On the contrary, signing up for more credit cards or loans is a bad idea. That is if financial institutions allow you to do so while under the terms of bankruptcy. Instead, focus on the creation of a solid financial plan. This encompasses the creation of an emergency fund of $1000 to start. Then, go through your income and expenses to find areas to reduce spending. With these two items completed the next thing to do is list your debts from smallest to largest. Your bankruptcy should be listed as well. Devote as much money as possible to pay down the smallest loan. Then, take those funds and add them to the next biggest, and so on, until everything is paid off.
A bankruptcy filing isn’t a death sentence. Through the gathering of proper information and diligent payments, it’s a life preserver. Not only does it help you get back on your feet but it also gives you a new sense of monetary responsibility. In the end, be thankful for the opportunity to start down a fruitful path.