Student Loans and Bankruptcy

Bankruptcy: The Beginning Of Your Financial Reconstruction

11 December 2015

Roy Sanders

Bankruptcy may not be your ideal option for dealing with your current debt issues. However, bankruptcy can be the beginning of your financial reconstruction if you know how it can help you get through these hard times.

Debt Management

Bankruptcy gives you the ability to manage your existing debt in a more effective manner. In many cases, you can erase or at least limit the amount of money you will need to spend to lower your debt amounts. However, it is important to note that no form of bankruptcy will erase child support payments, alimony or student loans that you owe.

With that said, a Chapter 7 bankruptcy will allow you to erase a good portion of your debt. With this option, you do not pay back debts such as credit cards, personal loans and medical bills. However, if you own a home or car that you want to keep, you will need to file for a property exception. The exception allows you to keep these items if you continue to make the monthly payments.

Your other option is a Chapter 13 bankruptcy, where you work with the courts to create an alternate payment plan for your debt. In most cases, you and your creditors will work on an agreement that lowers amount the amount you need to repay. Chapter 13 is also a better option when you have a home. The new payment arrangement may allow you to rework your mortgage amount, so you can catch up on any past due payments you owe. 

Spending Control

Another benefit of filing for bankruptcy is that it can help you control your spending habits. By limiting the amount of credit you can use, you have a better chance of breaking the habit of using credit cards and loans to buy items.

This reduction in credit also gives you the opportunity to create a more realistic financial plan that only uses your income to pay for items you need. To accomplish this goal, many states require you to complete credit or financial counseling before the courts will agree to the bankruptcy.

This type of counseling is designed to help you learn different ways to budget your income. In many cases, it can show you how to divide your monthly income so there is money for your bills. If any money is left over, it can also show you what type of banking accounts you can use to save for the future.

Even though the idea of bankruptcy may be unpleasant in the beginning, it can be the start of a new financial future. By reducing your debt, credit availability and learning new budgeting skills, you will have an easier time rebuilding your finances. Contact a local bankruptcy lawyer for further assistance.

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