Is Bankruptcy a Good Idea for You?
Is Bankruptcy a Good Idea for You?
There are many factors that should be taken into account when considering filing for bankruptcy.
1. Figure out what bankruptcy options you have. There are types of bankruptcy most commonly used by individual filers in the United States:
- Chapter 7 bankruptcy is a bankruptcy proceeding that can wipe out many of your debts in a three to six month period. However, you may lose some of your personal property. You can find out more by looking at Bankruptcy Overview: Chapter 7.
- Chapter 13 bankruptcy is a bankruptcy proceeding that can be more complicated than Chapter 7 bankruptcy. In Chapter 13, you will be required to make a repayment plan based off of your income, showing how you will pay off your debts in the next three to five years. You can find out more by looking at An Overview of Chapter 13 Bankruptcy.
2. Consider your alternatives. Bankruptcy is not for everyone. You should consider your situation carefully before making a decision. You may find that you do not need to file bankruptcy because you are judgment proof, or that you can fix your financial woes with a few simple changes.
3. Ensure that you are eligible to file for the type of bankruptcy you want to file. There are certain requirements that you must meet in order to file for certain types of bankruptcies. For example, you may not be able to file for Chapter 7 bankruptcy if your income is high enough to pay off your debts through Chapter 13. Also, if your income is too low, or your debts too high, you may not be able to file for Chapter 13 bankruptcy because you cannot show that you are able to meet your repayment plan.
4. Find out what debts will and won't be forgiven. Certain types of debts, such as child support, alimony and tax debts, that cannot be wiped out through a bankruptcy proceeding, no matter whether you file Chapter 7 or Chapter 13.
5. Figure out what will happen to your home if you file for bankruptcy. If you are already having problems making your mortgage payments, perhaps they will become easier if some of your other debts are forgiven. However, you may lose your home if you file for Chapter 7 bankruptcy. On the other hand, if your income is high enough, you may be able to file for Chapter 13 bankruptcy and include your mortgage payments on your repayment plan.
6. Figure out what will happen to your other property, like your car. What happens to other property during a bankruptcy proceeding will depend on what you've done with it and the property exemption laws that are available to you. If, for example, you put up your boat or your car as collateral on a loan, this makes that loan secured and the creditor may still be able to take your property even if you are in bankruptcy. Also, only certain types of property are protected by exemption laws in Chapter 7 bankruptcies.
7. Find out if your credit card debts will be wiped out. You should figure out if your credit card debt will be wiped out by a bankruptcy proceeding before you file. If you lied on a credit card application or spent well beyond your means, bankruptcy may not be able to forgive your credit card debt.
8. Ensure that your pension plans are safe. Most pension plans and life insurance policies are protected by state laws in a bankruptcy proceeding. Before filing for bankruptcy, it would still be a good idea to find out whether your pension plan (401(k), IRA) and/or life insurance policies will continue to be protected.
9. Make sure that any co-signers are not stuck with your debt. You should go back through all of your debt agreements to make sure that no one that co-signed for any of your loans will be stuck making payments on your debt. Generally, Chapter 13 bankruptcy will protect any co-signers to your debts, but Chapter 7 will not.
10. Your personal life will be invaded. In order for bankruptcy to work, you will have to show the bankruptcy court every aspect of your financial life. In addition, other people may find out about your bankruptcy. In Chapter 7 bankruptcy, it is likely that some of your personal property will be taken and sold in order to pay off your debts. Also, in a Chapter 13 bankruptcy, you will probably have to ask permission to spend your own money for the next three to five years.
Considering Bankruptcy? You May Want to Speak With a Lawyer First
If you're in a position to be considering bankruptcy you're probably dealing with some pretty complicated problems. You don't have to try to unravel the tangle legal and practical decisions you're facing alone. Contact a local bankruptcy law attorney to learn more about your options and how a lawyer can help get your financial life back under control.