5 Things to Know Before Filing for Bankruptcy

If the bills are piling up and debt collectors have been harassing you for your student loans, hospital bills, and other debt, you aren't alone. Like many people struggling financially right now, you may be considering filing for bankruptcy to clear your debt. There are credit repair options for everyone, but some are worse off than others, and filing for bankruptcy is sometimes the only option. Even though it may seem like your only way out, before filing, there are some things you need to know about bankruptcy.

Types of Bankruptcy

There are two types of bankruptcy that you can file for if your debt is overwhelming you. Chapter 7 bankruptcy will essentially expunge your debts and leave a harsh mark on your credit score for 10 years, and chapter 13 bankruptcy will require that you pay off your debt using a payment plan, but won't be necessarily as harsh on your credit as chapter 7 bankruptcy is. Choosing what type of bankruptcy to file is dependent on your personal financial situation, but before considering either, keep in mind the cost of filing.

Expenses

Even if you can't afford to pay your debt, you'll have to find a way to pay a lawyer if you need to file for bankruptcy. Filing for bankruptcy certainly isn't cheap, in fact, the average cost of filing for chapter 7 bankruptcy is $1,072, and filing for chapter 13 bankruptcy averages around $2,500. Some firms are willing to work pro-bono, or even line up a payment plan to make the filing process easier on their clients, but court fees and mandatory credit counseling are another expense to consider.

Advantages to Filing for Bankruptcy

If you're having a hard time paying down your debt, filing for bankruptcy might be your last option. Filing for bankruptcy means you can have your debts legally waved and collectors can be barred from attempting to collect a debt. If you choose to file for chapter 13 bankruptcy, you can consolidate your debt into a payment plan that may be more manageable for your current lifestyle.

Credit Impact

Filing for bankruptcy can leave a mark on your credit report for 10 years, which could affect your ability to take out loans, purchase or rent housing, and in some cases even getting hired. Make sure that you absolutely have to file for bankruptcy before you do, and ensure you have a plan to repair and rebuild your credit.

Property and Bankruptcy

Despite what many assume, depending on your state's legislature, your property won't always be seized if you file for bankruptcy. Though you can run the risk of losing your house, car, money or other assets, there are bankruptcy exceptions that vary state to state and ensure that you don't lose everything when you file.

Before you file for chapter 7 or 13 bankruptcy, consider the costs, credit impact, and your assets.