Each month tens of millions of workers head off to factories, service businesses and offices in hopes of making enough money to make ends meet. With rental costs and home prices going up each year, housing costs typically take about one-third or more of your income. Utilities take another big chunk of your monthly funds as water and electric rates continue to rise. Groceries and the occasional meals out, insurance expenses and child care expenses, if needed, seem to take all the rest of the money you make.
Now, with the arrival of the coronavirus we’ve seen our economic engine decimated. Many individuals and families can no longer make ends meet. If you haven’t been furloughed chances are that you’ve had your hours cut. Lots of people are behind on paying their rent and some may even have their utilities shut off. As a result of this endless financial pressure, lots of people are going to have to declare personal bankruptcy so they can get a fresh financial start in life.
Alternatives to Consider Before Filing for Bankruptcy
Because of cost and the effect bankruptcy has on your credit rating, it’s helpful to consider other alternatives before you file. First, you may want to contact your creditors and see if they are willing to work with you and negotiate payments plans that you can afford. Some unsecured creditors, like credit card companies, may be able to offer reduced payments over an extended time period.
Mortgage lenders may be able to set up repayment plans, modify the interest rate on your loan or offer to postpone some of your monthly payments. If you have a 401K plan you can borrow against your available, or vested, balance. If you have been affected by the coronavirus you can borrow up to 100% of your balance or up to $100,000.
Steps to Take If You Are Going to File for Bankruptcy
If you have exhausted other alternatives and need to file for personal bankruptcy, one of the first steps you should take is to meet with an experienced bankruptcy attorney. Schedules and forms are complex so it pays to retain someone to represent you. When you are doing your research on who to hire it’s helpful to read online reviews and get recommendations from people you trust.
Bankruptcy costs can be high. An average cost for a Chapter 7 filing is estimated to be around $1,250 while a Chapter 13 case can run $3,000. Many times you have to pay your attorney’s fees up front. Prior to filing you will also need to sign up for a credit counseling session that usually costs around $50, but the fee may be waived if you can’t afford it.
How Bankruptcy Affects Your Credit
Bankruptcy will show up on your credit report for a long time, between 7 and 10 years depending on the whether you filed for Chapter 7 or Chapter 13. This initially makes it hard to get new credit, like a loan or credit card. Over time with good credit habits and a proven track record of payment, the effect on your credit lessens.
One of the things you can do to help rebuild your credit is to get a credit card that is secured. With this sort of card you deposit funds with the bank and you can then use the card for a credit limit up to the amount you have in the bank. This helps you begin to rebuild your new, improved credit history.
If you are not able to pay all of your bills and are facing financial insolvency, you may be a candidate for filing bankruptcy. If you meet with a local bankruptcy attorney you will be able to learn what options are available and what the next steps are.