Should I File For Bankruptcy?
Bankruptcy is a major decision when you are facing mounting debt. For those who cannot pay off their debts, bankruptcy is a way to maintain essential assets while getting creditors off your back. On the other hand, bankruptcy also impairs your ability to get credit for up to 10 years. So how do you know when to file for bankruptcy?
Consult With An Attorney
Ultimately you will need to consult with an attorney to claim bankruptcy. Filing for bankruptcy is a detailed procedure that requires professional expertise. An attorney will discuss all possible options with you to improve your financial situation. Often the initial consultation with an attorney is free. If you decide to claim bankruptcy, the court and attorney fees are likely to be anywhere from $1,200 to $2,000. To file for bankruptcy, you need to be able to pay the required legal and court costs.
Review Your Finances
Prior to consulting with an attorney, carefully review your finances so you know your financial bottom line. Gather all your bills and tally what you owe. List your valuable assets. Determine your annual income. Write down a list of your debts, necessary expenses and income so you can easily present the facts to an attorney. Order your credit report from each of the three major credit reporting agencies. You don't have to join any type of credit repair service to get your credit reports. By law, you are entitled to a copy of your credit report once annually.
Review Your Credit Reports
Contact TRW, Experian and Equifax directly for copies of your credit reports. Once you receive your credit reports, carefully review your outstanding debts. Make sure nothing is listed that does not belong to you. Old debts are often sold to collection agencies that may attach them to the wrong person. Admitting to a debt that is not yours means you are still responsible for paying it. An attorney can help you dispute debts that are not legally yours so you do not have to pay for them.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy discharges all your unsecured debts. Typically you are not required to make repayments and debts are simply eradicated. Within just a few months, all your unsecured debts can be discharged. A debtor must qualify under the “means test” for Chapter 7 bankruptcy. The test was established in 2005 and currently 96 percent of applicants pass to claim Chapter 7. You must complete a pre-filing session with a credit counselor to review your finances before you can formally claim Chapter 7 bankruptcy. Creditors cannot contact you once a stay is filed for bankruptcy. Certain secured assets such as a car may be renegotiated so you can keep them if payments are made in a timely manner.
Who Files For Chapter 7 Bankruptcy?
People who benefit from Chapter 7 bankruptcy usually have few assets other than clothing and furniture. They may rent their home or have no equity left if they are homeowners. Usually there is little or no money left in the monthly budget after paying for basic expenses. Chapter 7 helps people get rid of outstanding medical bills, credit card bills and payday loans that they are simply unable to cover.
What Is Chapter 13 Bankruptcy?
A Chapter 13 bankruptcy establishes a repayment schedule with your creditors. A single payment is made to the Bankruptcy Trustee to distribute to all creditors accordingly. With a Chapter 13 bankruptcy, you have 3 to 5 years to repay all delinquent accounts per the court's schedule. Creditors cannot directly contact you during this period. When all your debts are repaid, your bankruptcy is discharged so you are financially free. To qualify for Chapter 13 bankruptcy, your unsecured debts must not exceed $307,675 and your secured debts must be less than $922,975.
Who Claims Chapter 13 Bankruptcy?
If you have home equity you want to protect and outstanding bills you cannot pay, Chapter 13 is a viable solution. Your regular income may cover all your basic expenses but you just cannot make your minimum credit card payments. Chapter 13 helps you get back on track so you are debt free within 3 to 5 years.
What Is Chapter 11 Bankruptcy?
Chapter 11 is predominantly for corporations and companies. It works much like a Chapter 13 bankruptcy proceeding. Businesses prove their earnings versus what they owe then the court determines whether they must pay back what they owe.
Am I Protected Against Creditors When I Claim Bankruptcy?
Once you receive your bankruptcy discharge, creditors cannot bother you anymore. Outstanding debts are wiped out so you no longer owe anyone. For a Chapter 13 or Chapter 11 bankruptcy, this occurs after all repayments are rendered according to schedule. When you claim Chapter 7, your debts are discharged within a few months. There are several exceptions:
- taxes, child support and other government debts cannot be discharged in bankruptcy;
- secured debts require assets be liquidated to pay a portion of the outstanding debt; and
- personal injury claims, acts of fraud and court fines are not included in bankruptcy.
Will I Lose All My Major Assets If I Claim Bankruptcy?
In some instances, the court may require you to liquidate certain assets to repay your creditors. To protect your assets, make sure you are represented by a competent attorney who will negotiate to protect your home, car and other major assets so you don't lose them during bankruptcy.
Can I Get Turned Down For Bankruptcy?
In rare circumstances, you may be turned down by the courts for bankruptcy. If you are represented by an attorney, it is highly unlikely you will be turned down. Even if you get turned down, you can attempt to file bankruptcy again after 180 days.
Can I Get Credit Again After Claiming Bankruptcy?
An increasing number of people are facing financial trouble and filing bankruptcy. Because of this, the ramifications of claiming bankruptcy are less severe than several years ago. Typically, a bankruptcy remains on your credit report for 8 to 10 years. You are likely to have a more difficult time obtaining credit and may have to pay higher interest rates. It becomes easier to obtain credit within 2 to 3 years after claiming bankruptcy. Additionally, claiming bankruptcy may have an impact on your future in certain careers such as politics, law and accounting.
Bankruptcy can be a relief if you are stressed about outstanding debts and have no way to pay them. Although your credit is impacted, bankruptcy gives you the chance to make a fresh start.
Thank you to Stacey Doyle for this "When to File For Bankruptcy" article.
