Do I Have to Declare Bankruptcy?

Debt is extremely stressful. It’s a big, dark number hovering over your head all day, casting a shadow over everything. When people are in debt, they often take drastic measures that they needn’t have taken. Make sure you don’t fall into this trap. Be informed of all the steps you can take. By working with a bankruptcy attorney Harrisburg PA way, or wherever you are based, you can get professional advice on what your next step should be.

Understanding bankruptcy

Bankruptcy is a legal status. Generally, bankruptcy is imposed by a court order on the successful appeal of the person in debt. If the court finds you to be unable to pay your debt, the legal status of bankrupt is applied to you. This cuts off your finances from your creditors through a recognised legal process. This gives you some breathing room to get your personal finances back in order.


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There are different forms of bankruptcy. When people say they’re filing for bankruptcy, chances are they’re referring to Chapter 7 bankruptcy. Put simply, this is when all eligible assets held by the person in debt are sold by the court. This pays off as much of the debt as possible. The amount that can’t be paid through this sale is written off. People sometimes find relief in bankruptcy; you have time and privacy after the filing to pick yourself back up.

But bankruptcy is an extreme. If you own a business, that business must cease operations. Bankruptcy is also made public; your employer, potential employer, and the creditor will know about it. It also takes a huge hit out of your credit score. Those looking for discretion won’t find it here. It’s also very expensive, so you need some money to spend to start the process. Bankruptcy is absolutely a final resort. You shouldn’t take this route without giving settlement or consolidation serious thought.

Consolidating your debts

Debt consolidation is a worthy course of action if you have several debts. It involves hiring a service to act as a middleman between you and your creditor. They will negotiate for smaller payments. Unlike bankruptcy, this isn’t an act that gets shared around. It will show up on a personal credit report, but that’s about it. Everything is done in strict confidence.


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Settling your debts

Debt settlement sees the creditor selling your debt to a collection agency. If you’ve proven that you are unable to pay your debt in full, the creditor will take a loss and let a collection agency buy the debt. You will then owe the collection agency a smaller amount. This can be a tricky process due to your need to negotiate. It involves talking directly to a representative of the creditor, who will by attempting to get you to pay the loan back in full. You will then have to settle on a figure that the collection agency will pay in order for the debt to be transferred.

There are actually a surprising number of consumers unaware of the alternatives to bankruptcy. People tend to believe that not declaring bankruptcy will result in creditors taking horrid action against them. Horror tales of agencies seizing people’s homes work to the benefit of creditors. It scares people into making rash financial decisions. But there are other options, and bankruptcy should not be turned to until those options are exhausted.