Declaring bankruptcy is often people’s worst nightmare, but due to the harsh economic climate of recent years, and especially because so many Americans are currently having trouble finding work, bankruptcies have grown to nearly epidemic levels.
What is Bankruptcy?
Reading about bankruptcy can be extremely confusing as it’s an immensely complicated subject. Bankruptcy is usually only declared and filed when an individual is at his or her lowest financial point, and can no longer see any realistic way to ever pay off their debts. Bankruptcy is declared for different reasons, but common catalysts include unexpected medical bills, an unexpected death in the family, losing a job or financial investments failing to pan out.
In plain English, bankruptcy involves legally petitioning or filing (essentially admitting) that you no longer have any money, or that you believe you will never have enough money to repay all of your debts. Once you have filed for bankruptcy, the next steps you have to take will depend on what chapter of bankruptcy you file under.
The Six Types of Bankruptcy
Chapter 7: Liquidation
Filing for Chapter 7 liquidation bankruptcy is the most common form of filing in the United States. Chapter 7 bankruptcy requires an individual appoint a trustee, who will then distribute their client’s non-exempt property to the various creditors that their client owes money to. This type of filing usually allows the individual to keep essential property, so they do not necessarily risk losing everything.
Chapter 9: Reorganization for Municipalities
Chapter 9 bankruptcy is only available for municipalities and is a form of reorganization not liquidation. It cannot be filed by a private individual.
Chapters 11, 12 & 13: Reorganization
If an individual files for bankruptcy under chapter 11, 12 or 13, they usually get to keep all or the majority of their personal possessions, investments and other assets. However, all future earnings must directly go to pay off creditors.
Chapter 15: Cross-Border Insolvency
The Bankruptcy Abuse Prevention and Consumer Prevention Act of 2005 added the Chapter 15 bankruptcy option. This is a very specialist type of bankruptcy filing, dealing exclusively with foreign companies that have outstanding U.S. debts, so it is not available to individual people.
What are the Effects of Bankruptcy?
The effects of bankruptcy are predominantly negative, which is why bankruptcy is usually only used by people as a last resort. Once an individual has filed for bankruptcy, regardless of the particular chapter, they will face various financial obstacles for many years and in some severe cases, forever.
Loan companies become extremely reluctant to lend money out to people who have filed for bankruptcy, which can make it very difficult for people to own property in the future as obtaining a mortgage can become virtually impossible.
Although credit card companies are usually willing to award credit cards to people that have filed bankruptcy, even if they filed because of credit card bankruptcy, they will most likely be charged exceptionally high interest rates and their credit card limit will be very low.
Life post-bankruptcy can also be made even more difficult because many job applications require applicants to state if they have ever declared bankruptcy, and having a bankruptcy on record is one of the fastest ways to be disqualified from working at some companies.
The Pros and Cons of Bankruptcy
- For many people, declaring bankruptcy allows them to wipe the slate clean and start over without overbearing debt. Filing bankruptcy allows these individuals to get started on the road to financial recovery, even if it is a rocky one.
- Bankruptcy allows people to get out of their immediate debt, and start working toward re-building their credit and finances. It is the only way some people can ever hope to establish good credit again, as they’ve become so overburdened by debt that there would be no way for them to ever recover without erasing it.
- Credit card interest rates are astronomically higher for people who have filed for bankruptcy, making it much harder for people who have filed bankruptcy to effectively manage their future cash flow.
- Mortgages become extremely difficult to obtain, sometimes making it all but impossible for people who have declared bankruptcy to ever purchase their own property again.
- Obtaining certain jobs can become problematic if you have declared bankruptcy, especially if your career is within the financial services industry or if it will involve any sort of budget planning.
5 Ways You Can Avoid Filing Bankruptcy
In most cases, declaring bankruptcy should only even be considered as a last resort, and any alternatives to bankruptcy should be considered first. Avoiding bankruptcy may seem unlikely if you are in a tough financial spot, but consider these 5 options before you decide to file:
Downsize Your Lifestyle
This may sound easier said than done, but you definitely need to readjust your lifestyle and dramatically decrease your spending if you want to prevent bankruptcy. This may involve selling your house and temporarily renting a more cost effective apartment, trading in your car for a cheaper one, cancelling your cable and shopping at discount stores, but it could also involve other sacrifices. It is essential to cut out any unnecessary expenditure, even if it’s a blow to the ego, as very few things are as financially destructive as filing for bankruptcy.
Reach Out to Your Creditors and Mortgage Company
If there’s no way you can pay your creditors or mortgage on time without declaring bankruptcy, then you should contact these companies personally before taking drastic measures. Many credit card companies are willing to suspend interest for six months and mortgage repayments can usually be rescheduled and extended. Before declaring bankruptcy, your first action should be to directly contact any companies that you owe money to and try to come to a more financially agreeable arrangement.
Create Emergency Funds
To avoid ever having to deal with a forced bankruptcy, make sure you always have some emergency funds available. A simple way to set one up is by putting at least 10% of each pay check into your savings account and leaving it there to gain interest. This may sound excessive, but saving and not spending all of your earnings can go a long way when it comes to unexpected emergencies, which can serve as one of the best buffers to protecting you from ever having to file for bankruptcy.
Take Out an Auto Title Loan
Taking out an additional loan when in you’re in financial trouble may sound unwise, but if you’re only facing short-term cash flow issues, then it can get you over that initial financial hump and set you on the path to long-term recovery. An auto title loan is one of the easiest types of loans to be qualified for, and they rarely require a credit check so even if you’ve destroyed your credit on your path toward bankruptcy, you should be able to get one anyway. Title loans are issued based on your ability to repay the loan.
Car title loans award you with the value of your car in exchange for its title, which will only be returned to you once you’ve paid off the entire value of your loan. Legitimate car title loan companies, however, will allow you to continue to use your vehicle, since it’s in their best interest that you are able to continue going to work, living your life, and making your debt repayments.
When it comes to avoiding filing for bankruptcy, auto title loans can provide the financial relief you need to stave off financial disaster.
Sell Your Stuff
Chances are that you are sitting on a goldmine without even knowing it. If your financial situation has gotten so bad that you are considering bankruptcy, then you should try selling any unneeded stuff first.
Look to sell any electronics, a second car, a second property, designer clothes, watches, jewelry and any stocks or other financial investments that you still own. Use the funds you raise from selling these items to pay off as much of your debt as you can and then reassess your financial situation, because you may be able to stave off bankruptcy for good if you can raise enough money by liquidating these unnecessary possessions.
Car Capital Financial
Car Capital Financial is a car title loans company operating out of Southern California. We’ve helped countless individuals like yourself avoid filing for bankruptcy and find their financial footing again, and we’re ready to meet your financial needs.
Contact us now to receive the cash you need in as little as 30 minutes. Our applications are simple, streamlined, and straight-forward, and we will not require that you undergo a credit check, so regardless of your financial past, we’re ready to provide you with a bright future.
Contact us now to arrange for a car title loan in San Diego, Orange County, Los Angeles or Riverside County. Please call 1-888-500-9887 to discuss your financial needs.