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To File or Not to File: Is Bankruptcy Right for You?

Posted By admin || 21-Sep-2009

Understanding Bankruptcy

 
Consumers should educate themselves about bankruptcy when deciding whether or not to file. Here's a quick primer on steps to take when deciding whether or not to file for bankruptcy:
Step One: Educate yourself about bankruptcy.  For individual consumers, there are two main categories of bankruptcy.  Chapter 7 is the form of bankruptcy where most, if not all, of your debts will be cancelled outright, typically in as little as 2 to 6 months.  Chapter 13 bankruptcy reorganizes your debt, allowing you to make payments based upon your income over 3 to 5 years. Step Two: Verify that you're eligible to file for bankruptcy.  You may not qualify to file for Chapter 7 bankruptcy if you have enough money coming in each month to repay your debts via Chapter 13 instead.  Alternatively, you may not qualify for Chapter 13 bankruptcy should your debts be too high, or your income too low. Step Three: Find out which debts won't be discharged.  Some debts are not eligible for cancellation via bankruptcy.  For instance, alimony and child support obligations will not be wiped out during bankruptcy proceedings. Step Four: Home sweet home--can you keep it?  You can't get out of paying your mortgage if you want to keep your house, even through bankruptcy, but alleviating other debts may make it easier for you to make your mortgage payments each month.  Consider, though, that you could lose your home if you have enough equity built up and file for Chapter 7, depending on the exemption cap required in your state.  If you file for Chapter 13, however, you can keep your home and pay your mortgage arrears on your repayment plan. Step Five: Will your credit card debt go away?  Bankruptcy is definitely helpful to wipe out most, if not all, credit card debt and unsecured loans--unless you went on shopping sprees right before filing or lied on your credit application. Step Six: What about your pension, IRA, or 401(k)?  Most states provide exemptions for pensions, retirement accounts, and life insurance during the bankruptcy process.  If you have any or all of these type of funds, you'll want to consult with a good bankruptcy attorney in your state to find out what is and isn't protected. Step Seven: Will filing bankruptcy "stick it" to your cosigners?  That depends.  Under Chapter 13 repayment plans, any friends or relatives who helped you out by cosigning for a loan will be protected.  If you file Chapter 7, however, they will be stuck with whatever debt you don't pay. In the right circumstances and with the right bankruptcy attorney to guide you through the process, it may just be the best financial decision you'll ever make.
Categories: Bankruptcy
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