Divorce can cause financial issues for many people because there is only one source of income but many of the same expenses. Although making a new budget or making other changes may solve the problem, this is not always the case.
For some people struggling to pay off debt, bankruptcy may be an option. Before rushing ahead, however, it is important to decide if this is the right move and if there are alternatives.
Advantages and disadvantages of bankruptcy
If it is at the point where creditors are calling all of the time, FindLaw states that one of the advantages of filing bankruptcy is that this harassment stops. Bankruptcy also allows you to make a fresh start, which is often a good way to put your divorce behind you.
There are also disadvantages that you must be aware of. If you file for Chapter 7 bankruptcy, you may lose many of your assets (but not all). You will also not be able to use your current credit cards. Having a bankruptcy on your file also lowers your credit score and makes it more difficult to obtain loans.
Bankruptcy option for wage earners
If you think that bankruptcy may be an option, but you do not want to file Chapter 7, Chapter 13 may be an option. The United States Courts refer to this as the wage earner’s plan, because it is for individuals who make a regular income and want to keep their assets. To be eligible, filers must:
- Be self-employed, earn a regular wage or be a sole proprietor
- Not be behind on any tax filings
- Not have secured or unsecured debts over the maximum eligible limits
The debtor must also submit a three- or five-year repayment plan that includes fixed payments. If approved, and the debtor is able to make all required payments, the court will discharge many of the debts after the bankruptcy term. After discharge, the debtor must continue to pay some debts, such as support payments and the mortgage.
Although filing bankruptcy of any kind has its disadvantages, filing for Chapter 13 allows wage earners to keep most assets if they are able to make the payments, and harassment from creditors does not happen during the repayment process.