Every year an unimaginable amount of people file for bankruptcy. It is an unfortunate repercussion of the tough economic times we have been facing. Bankruptcy changes your life for a long time and its repercussions echo into every facet of your financial environment. Perhaps the worst effect that it has is the devastation of your credit score and thus your credit worthiness. This in itself can ruin any future efforts to secure financing for a house, a car, your kids education, as well as having a credit card which has become an absolute necessity these days. However, there are actionable tactics you can employ to combat this financial devastation, most notably, bankruptcy loans.
The Different Types of Bankruptcy
Bankruptcy comes in many flavors. Ten or so years ago filing for bankruptcy could erase ALL your debt in one final swoop. Things have changed, the clean slate technique is no longer possible and you will have to pay your creditors a percentage of your debt. There are six types of bankruptcy, and although the details of each vary from state to state the basics are easy to understand. As far as personal bankruptcy goes Chapter 7 and Chapter 13 are the most common.
Chapter 7
This type of claim is also known as a straight bankruptcy. Here the debtor liquidates all non-exempt properties to a trustee who then sells it. The money received is then distributed to the creditors based on the percentage of the debtors overall outstanding balance owed. In many cases, people just don’t have a lot of assets to be sold and are given a clean slate without losing too much.
Chapter 13
Also know as a reorganization bankruptcy, a person filing a Chapter 13 bankruptcy agrees to pay off all their debts in three to five years. This solution is usually chosen by people who have non-exempt assets that they do not want liquidated such as a home. To be eligible for this type of claim the debtor must have a steady and predictable income that is substantial enough to cover their normal living expenses as well as continue making payments towards their debt. With the terms of repayment extended to a period of three to five years, the repayment process becomes a bit easier and enable the debtor to “catch up” on previously missed payments.
Bouncing Back From Bankruptcy
After filing for bankruptcy many people look for ways to regain their credit worthiness. Even though a Chapter 7 or Chapter 13 grants a debtor a fresh start, their financial history is recorded on their credit report and acts as a negative signal to new potential lenders. However life continues, kids need to go to college, homes are needed, and a car is an absolute necessity for people to get to their job regardless of their financial standing. So what is a person to do when their financial history is detrimental to their making any new positive progress? This is where the bankruptcy loan comes into play.
Bankruptcy loans are bad credit or sub-prime loans created specifically for those who are in this exact situation. Like any bad credit loan you should expect higher interest rates and possibly added fees due to your high risk factor. Also, as with any other type of loan, rates and terms will vary depending on the lender. If you plan on applying for and taking out one of these loans be sure to research as many lenders as possible, compare the rates and terms, and choose accordingly. In other words, shop around.
Restoring Your Credit Worthiness
One of the less common ways to use this type of loan is not for a mortgage or a car or for college tuition, rather it is used for no other reason than to pay it back on time. Doing this will improve your credit score so that when the time comes and you do need the money, your rates and terms will be less aggressive and more manageable.
One tactic is to get one of these loans for the sole purpose of paying it back on time in order to increase your credit score and credit worthiness. Once the money is in hand it is used to invest in stocks, or in a high-yield money market, any type of investment vehicle that earns a return on investment. This way, the loan is paid back with as little pain as possible because the interest earned from the investment is used to cover any interest incurred by the loan.
In many cases bankruptcy is caused by financial neglect while in other cases the reasons may be due entirely to circumstances beyond control. Loss of employment, medical problems, or just plain old bad luck can get to any of us. Fortunately the law takes this into account and has provided ways to remedy this type of financial falling out. Rest assured, no matter how bad you may think your situation is, you are not alone. Laws are in place to help you through this difficult stage however, it is inevitably up to you to see the process through and make the effort to come out the same if not better than when you went in.