When faced with overwhelming loan debt, sometimes it can be difficult to know what to do next. In many cases, Kentucky residents choose to file for bankruptcy after a few missed loan payments, with the hopes of eliminating or restructuring some or all of their debt.
Defaulting vs. filing for bankruptcy
When you take out a mortgage on your house or another type of loan, you are generally expected to repay the loan amount, plus interest, by making monthly payments to the lender. After a certain number of missed payments, a lender may consider you in default. A default could result in one or more of the following consequences:
- Your credit score will drop.
- The default will appear on your credit report for seven years, making it hard to qualify for a credit card or another loan.
- The lender may file a lawsuit against you to garnish your wages or put a lien on your home (for a portion of the profits from the sale of the home).
- The lender may repossess your vehicle (if you default on a car loan).
Many experts suggest filing for bankruptcy once you have gone into default, after it is clear that your financial situation is not improving. By filing for bankruptcy, you can stop lenders or creditors from coming after your assets or garnishing your wages.
What happens after the filing?
If you file for Chapter 7 bankruptcy, the court will pay off your creditors by selling some of your assets, but most leftover debt will be discharged. Some debts that will remain even after you file may include:
- Child support
- Student loans
Filing for Chapter 13 bankruptcy will allow you to hold on to most of your assets. However, you will need to come up with a repayment plan to pay off debts that are not discharged within three to five years.
Both Chapter 7 and Chapter 13 bankruptcy result in certain consequences including:
- A significant drop in your credit score
- A Chapter 13 bankruptcy will be noted on your credit report for 7 years, while a Chapter 7 bankruptcy will be noted for 10 years.
Whether it be because of overwhelming medical debt or the loss of a job, bankruptcy is an ever-prevalent issue affecting many families. Having a strong advocate to guide you through your bankruptcy filing can eliminate a lot of the fear, anxiety, and stress associated with an already delicate situation.