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What you need to know about bankruptcy
Many are filing for unemployment and suffering financially. In this Sullivan's Smart Sense, we share what you need to know about bankruptcy and other options available to you.
HOUSTON - After millions of people were thrown into unemployment, consumer bankruptcies are expected to soar this year.
MORE: 1.5 million more laid-off workers seek unemployment benefits
But bankruptcy should be your very last resort.
Here's what you need to know before you file and other options:
To file for bankruptcy, you're required to seek counseling from a certified credit counselor, like Joji Varghese with Money Management International.
"They will do a budget and credit analysis and from there either they could go the debt management program, or if the counselor believes that will not work for them, then the counselor will ask the client to seek a legal option," explained Varghese.
Having an attorney is advised because bankruptcies are complicated and can be thrown out. You can find an attorney through the National Association of Consumer Bankruptcy Attorneys, or if you can't afford one, through Lone Star Legal Aid or Houston Volunteer Lawyers.
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"You want to make sure you're filing the right kind of bankruptcy because it depends on your assets," he said.
Most people file Chapter 7, which forgives unsecured debts, such as medical bills, credit cards and personal loans, or Chapter 13 if you have assets and can pay some of the money back.
Some debts, such as taxes, child support, and student loans, cannot be discharged.
The process takes about six months, and you'll have a second round of credit counseling at the end.
"If they file bankruptcy, even after that life goes on. So they need to know their budget which is very basic for any person because you could not have a certain income and spend more than what you bring home," said Varghese.
Bankruptcies stay on your credit report for 7 to 10 years and can mean you'll pay higher interest rates for credit cards and loans and higher deposits for things like apartments.
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A credit counselor can help you avoid bankruptcy by negotiating with your creditors to reduce your interest or debt through a debt management program.
"If you're scared to speak about finances, don't worry, there are other counselors there like myself who will speak about it," said Varghese.
You can rebuild your credit after bankruptcy by making payments on time, keeping your credit balances low, and disputing any mistakes on your credit report.
You find resources on credit counseling, money management, and bankruptcies on MoneyManagement.org.