Five Things You Need To Know About Bankruptcy

Bankruptcy is a big, scary word, and one that most of us hope we’ll never have to look at too hard in our whole lives. There’s a stigma attached to going bankrupt, and to most people, that stigma is failure. If we go bankrupt, it means we’ve failed to look after our finances properly, and we’re unable to service our debts. You could look at it that way, but there’s another way to think about bankruptcy, too. If there’s no other way out, bankruptcy is a chance to start again. It’s a way of escaping from underneath a mountain of debt that would otherwise follow you for the rest of your life, and gaining an opportunity to rebuild your life.

Because we tend to avoid the subject of bankruptcy, people don’t tend to understand what it involves, or what it means for the people who go bankrupt. That lack of understanding means that people shy away from going bankrupt when it may be the best thing for their individual circumstances. The purpose of this article is to do away with at least some of that lack of understanding. Bankruptcies are increasing exponentially in the USA at the time of writing, so it’s vital that we all gain a better understanding of what this means either for ourselves or for people who we may know who find themselves going through bankruptcy.

A little housekeeping before we begin with our five facts: the information we’re about to relay only to bankruptcy procedures in the United States of America. And we would also advise you to consult a Harrisburg bankruptcy attorney (or one near you) to proceed with your case. And if you’re not a resident of the USA, you’ll need to look up information that pertains to the land of your residence. Secondly, we’re not giving you financial advice. The information we’re about to provide is presented for information only, and if you have questions or concerns about bankruptcy, you should seek the advice of a qualified professional.

You Don’t Automatically Lose Your Home.

There is a risk of losing your home if you go bankrupt, but that process doesn’t happen automatically. Every bankruptcy applicant is assessed as an individual, and the circumstances of your homeownership will be taken into account. If you have dependant children living with you in your home, it’s unlikely that you’ll be asked to sell it. It’s also unlikely that you’ll be forced to sell your home if there’s little to no equity in it. If the balance of your mortgage is at, or close to, the value of your home, there’s no money to release to creditors, and so no material benefit in selling the house. In some circumstances, you might be asked to release some of the equity in your home to creditors if it’s possible to do so.

You Don’t Automatically Lose Your Car.

Most people assume that bankruptcy involves losing everything of value and starting again from zero. It’s not quite that bad. There are certain assets that cannot and will not be taken from you. It’s extremely unlikely that your car will be taken, and even less so if you use your vehicle to get to and from work. Personal items like wedding rings are exempt from seizure, as are goods in your home that belong to children, or belong to your partner or spouse. You most likely won’t be asked to surrender your pension, nor any life insurance policies you have. Almost anything can be proposed as a bankruptcy exemption; what is and isn’t ‘up for grabs’ to your creditors can be negotiated before you agree to go bankrupt.

You Don’t Automatically Lose Your Job.

See above. Bankruptcy does not involve ‘losing everything.’ The whole point of the bankruptcy process is to wipe the slate clean and allow you to begin anew. There would be little point in going through the process if your primary source of income disappeared because you went bankrupt. In most cases, it’s not even necessary to inform your employer that you’re going through bankruptcy procedures. Even if they were to become aware, your employer wouldn’t be allowed to fire you purely because you’d gone bankrupt. There are some exceptions to this, however; if you work in a role that involves handling money in any way, or providing financial advice, it’s likely that going bankrupt is a breach of your contract. Check the fine print before you proceed any further.

Your Credit Rating Will Be Affected.

Your credit rating is where you’ll see the most significant effect of your bankruptcy. For those unfamiliar with the concept, your credit rating is a digital record that banks and credit agencies use to assess you for credit and repayment agreements. Think of it like the ‘return to player’ rate on an online slots game such as Gonzo Quest Megaways. That rate governs the likelihood of a player at an online slots website getting back all or part of the money they’ve paid into the game during the time they were playing. If the ‘return to player’ rate were less than fifty percent, nobody would play that online slots game because they’d know that they were unlikely to win anything. That’s how lenders look at you. Your credit report is your ‘return to player’ rate, and if it’s low, nobody’s going to lend to you. Your bankruptcy will be visible on your credit rating for a period of six years, and although the effects of it will diminish year upon year, it will still make it difficult for you to obtain credit, and perhaps even to enter into hire purchase arrangements or rental agreements, for that period.

You’re Not Bankrupt Forever.

Bankruptcy doesn’t have to follow you around for the rest of your life. Famous people like Simon Cowell, Richard Branson, and even Donald Trump have been bankrupt and gone on to become millionaires or even billionaires. So long as you follow all the requirements placed upon you as part of your bankruptcy agreement, you’ll usually be discharged from bankruptcy within nine to twelve months. This can sometimes – but not often – be extended to three years, depending upon the reasons for your bankruptcy. After that, you’re no longer classed as bankrupt, and although your bankruptcy will remain on your credit rating for six years, you’re otherwise free to resume your regular life without the burden of your debts hanging over you.

If you’re struggling with your finances at the moment and you think bankruptcy might be your only option, we hope this article has helped to put you at ease about what it is and what it does. Contact a professional before you make any decisions, and we wish you well.