Filing Bankruptcy and Is It Right For You?

A lot of our customers here at Cumulus use our product to consolidate debt. Many are even considering filing for bankruptcy. Many times, our customers are unclear about bankruptcy; what exactly it is, if they should file, and how it will affect their lives. So, we wanted to provide you with the essential information concerning bankruptcy so you will know what exactly it is and if it is right for you.

First, let’s start by defining Bankruptcy

Bankruptcy is the state of being bankrupt and is the legal status given to a person or company that cannot repay the debts they owe to creditors. It is imposed by a court order and most often initiated by the debtor. When an individual or company files for bankruptcy, the debtors assets are measured and evaluated and used to repay a portion of the outstanding debt. After the bankruptcy proceedings are successfully completed, the debtor is relieved of the debt obligations incurred before filing bankruptcy.

Types of Bankruptcy

In total, there are 6 types of bankruptcy under the US Bankruptcy Code. Some are directed towards companies and municipality, so let’s focus on the 2 directed towards individuals: Chapter 7 and Chapter 13.

Chapter 7

Chapter 7 bankruptcy is basic liquidation for individuals and businesses. It is the most common form of bankruptcy and also known as “straight bankruptcy.” It is the simplest form of bankruptcy available, but is also the most severe. Individuals filing for Chapter 7 are essentially liquidating (or selling) all assets to pay off creditors and starting over. This doesn’t necessarily mean that everything an individual owns will be sold. There are certain exceptions on the federal and state level and some may qualify to keep their residence or personal items. Once all the debtor’s assets are liquified, the money will go towards paying back the creditors. Not all creditors will be paid back so some debts may be deemed “forgiven,” will others may not be dischargeable. Some debts that will not be forgiven sometimes include alimony, child support, taxes, and student loans. Once you have filed for Chapter 7, you cannot file bankruptcy again for 7 years consequently, your ability to take out lines of credit will be extremely difficult.

Chapter 13

Chapter 13 is a form of debt consolidation supervised by a federal bankruptcy court, where a debtor and a trustee propose a repayment plan to the court. The court can either accept or revise the plan, and once the plan is decided upon, the debtor begins to full-fill the repayment plan which can last anywhere from 3 to 5 years. This form of bankruptcy is most often made by full-time employed individuals overcome by debt, but have the capacity to repay some of the debt they owe. This form of bankruptcy is attractive because individuals don’t have to liquidate their assets like home, car, and other property. In order to file for Chapter 13 you must have a reliable, steady income and have less than $269,250 in unsecured debt and less than $807,450 in secured debt.

What Form is Right for You?

Many people get confused on what form of bankruptcy to file. And, many people can be misled into filing when they don’t need to. There is a time to file for bankruptcy, but the golden rule is never to file unless you have to. And if you must, see if you qualify for Chapter 13 before filing Chapter 7.

Filing Bankruptcy is a difficult decision. When your financial world is spiralling downward, sometimes bankruptcy may be the only option, but it comes with a big price; your credit score and credit worthiness will be essentially ruined for many years and you could lose your home and assets. That’s why before you considering filing for bankruptcy, we suggest investigating stellar debt consolidation companies first. The good debt consolidation companies will settle accounts with your creditors in return for a structured payment agreement through them. We recommend visiting the National Foundation for Credit Counseling to help find a credible credit and debt counselor.

Here at Cumulus, we have helped many individuals avoid bankruptcy with our Income Share Agreements. These folks were able to receive money to pay off other creditors and make one payment to us based on their income and CAPACITY to pay. And, the biggest thing that distinguishes us from creditors and debt consolidation companies is that if you have a major setback in income, your payments to Cumulus go down. We are here to help in times of struggle.
If you have any questions about bankruptcy, debt consolidation, or any other financial inquiries, don’t hesitate to reach out to us and