Some types of bankruptcy give you the chance to design a repayment plan and pay back at least some of your unresolved debts. By doing so, you could somewhat mitigate the damage to your credit rating done by the bankruptcy filing.
That said, determining which bankruptcy is better for your credit can be subjective. All types of bankruptcy are an indication that you could What Types of Bankruptcy are There?
You can consider several types of bankruptcy to alleviate your financial concerns. Each kind – called a “chapter” – is designed for different entities facing different circumstances. The four most commonly filed bankruptcy types are:
- Chapter 7
- Chapter 11
- Chapter 12
- Chapter 13
Are There Differences Between Bankruptcy Chapters?
The factors that differentiate these four bankruptcy chapters include:
- Who may file: Both individuals and small- to medium-sized businesses can file for Chapters 7. Chapter 13 is for individuals, including those who self-employed or are business owners. Chapter 12 is reserved for family farmers and fishermen. Chapter 11 is usually restricted to companies or corporations (though there are exceptions, as S. Courts explains).
- What you may keep: Chapter 7 bankruptcy requires petitioners to sell their nonexempt assets to pay their debts. However, many individuals do not own nonexempt assets and therefore keep everything. The other bankruptcy chapters also protect your property and finances.
- What you must pay back: All these chapters except for Chapter 7 require the petitioner to submit a repayment plan. The plan requires you to pay back at least some of what you owe over several years, subject to approval from your creditors and the court. Thus, this plan could reduce damage to your credit score.
Being in a position where bankruptcy feels like your only option can be scary and overwhelming. However, a bankruptcy attorney can serve as your guide throughout the entire process, fighting to ensure that the long-term effects of your financial problems – including the impact on your credit – are minimal.
Do I Have to File for Bankruptcy?
According to the Consumer Financial Protection Bureau (CFPB), bankruptcy lowers your credit score because it indicates there is a good chance you will be unable to pay back any money you borrow. This stigma could affect your credit score for years, preventing you from fulfilling your dreams of purchasing a house or car.
While bankruptcy may be unavoidable for some, in many cases, an individual or a business facing financial trouble has alternatives that will do less harm to their credit score. These include:
- Renegotiating loans: If you have not already spoken to your creditors about redefining the terms of your loans, a lawyer can help you do so. A renegotiation could give you more time to repay what you owe. It may also allow your creditors to collect all of what you owe them, rather than the partial repayment they could expect from a bankruptcy repayment plan.
- Debt counseling: Some organizations offer individuals and businesses personalized advice on managing debt without resorting to bankruptcy. A law firm can direct you to these organizations if they may be helpful in your case.
- Debt consolidation: You could reorganize several of your outstanding debts into one payment with either a secured or unsecured loan. This option sets a fixed interest rate and date for repayment for these debts.
- Waiting: This may be the most challenging option, but it does sometimes pay to remain patient. Bankruptcy is a very serious step that you should avoid taking if you believe there is a good chance of your situation improving soon.
What Debts Can Bankruptcy Help with?
Filing for bankruptcy allows you to discharge specific types of debt. However, you cannot resolve other types through bankruptcy. For example, filing for bankruptcy does not affect child support or fines related to criminal convictions – you would still be responsible for making these payments on time.
On the other hand, if you struggle with credit card debt, bankruptcy may be a viable option. Bankruptcy can also reduce or eliminate these debts and loans.
- Car payments
- Back rent
- Mortgage payments
- Medical bills
- Personal loans
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Can I Get Help with My Bankruptcy Case?
You have the right to hire a bankruptcy attorney to help with your case. In fact, a lawyer’s knowledge of bankruptcy law and experience with prior cases may save you time, reduce stress, and even identify ways to protect your credit score.
It is a bankruptcy lawyer’s job to file for bankruptcy and handle all related legal tasks on the client’s behalf. These tasks include:
- Exploring all possible options: An attorney can assess your situation and identify the solutions that work best for you. Then, they can walk through those solutions to help you decide which offers the most potential benefits.
- Collecting and filing all necessary paperwork: The court and your creditors will likely require many documents related to your financial situation, such as bank statements and paystubs. These are in addition to the forms you must fill out to file your case. An attorney can help you compile these documents and submit the necessary forms.
- Helping you comply with court orders: For example, the court may tell you to submit a repayment plan by a certain date. In this case, your lawyer would help you create the plan and submit it within the deadline.
- Representing you at legal meetings: If the court or your creditors want to speak with you in person, your bankruptcy attorney can either accompany you or appear on your behalf.
- Working with you as your case changes: No financial situation remains static. For example, if you file for one bankruptcy chapter, then realize that a different chapter is more advantageous, your lawyer could help you change course.
- Supporting you during this tough time: An experienced bankruptcy law firm will understand how difficult this experience is for you. Your attorney will treat you with respect and compassion while providing honest advice about your case.
Get Bankruptcy Help Today
Farmer & Morris Law, PLLC, can help you determine which bankruptcy is better for your credit situation and financial future. Call us today at (828) 286-3866 for a free consultation. We can take your call any time, day or night. The sooner we can get started, the more time we have to create and implement the plan that represents your best interests.