6 Helpful Questions to Ask Yourself When Deciding if Bankruptcy is Right for You


6 Helpful Questions to Ask Yourself When Deciding if Bankruptcy is Right for You

Bankruptcy can help you eliminate debt and get back on your feet, and it’s often a new start for those who have been dealing with long-term financial trouble. However, filing for bankruptcy is a major decision, and many people find it confusing. If you’re wondering whether or not filing for bankruptcy is the right choice for you, these six questions can get you started on the right track.

Will Bankruptcy Help You?

Depending on the type of debt you have, your income, and the types of property you own, there are situations in which filing for bankruptcy can do more harm than good. For instance, there are certain financial commitments that are considered “priority obligations” by the court. These are debts that don’t go away, and you’re still responsible for paying them even if you file for bankruptcy. These include such obligations as alimony, child support, and various tax debts. If much of your debt is secured, you might also want to consider another option. Those with the financial means to settle with their creditors outside of the bankruptcy courts may find that doing so is a better option.

Do You Meet the Eligibility Requirements?

Filing for bankruptcy won’t do you any good if you don’t qualify. To file for Chapter 7, you’ll have to pass a means test, and to qualify for Chapter 13, you have to earn a certain amount. Based on your income, the types of debt you have, and the chapter you want to file under, you might find that you don’t qualify. Be sure to do your research.

Is There a Lawsuit Against You?

If you’re facing a lawsuit from your creditors, bankruptcy is almost always a great option. When you file for bankruptcy, an “automatic stay” goes into effect and your creditors are legally barred from going after you in any way until the bankruptcy case is settled and closed. They also must suspend any legal action against you. Because a lawsuit can often mean the loss of your home, car, and wages, filing for bankruptcy can be a financial life saver.

Are You Facing Foreclosure or Repossession?

The automatic stay also means your creditors can’t go after any property you have that’s a part of a secured debt (i.e., property you’ve been given in exchange for the promise of payment). Filing for bankruptcy can give you some breathing room and help you avoid losing your car or home. You usually can’t get rid of your lender’s lien on any property you have, but you can use bankruptcy to catch up on payments you’ve missed, reduce the total balance owed, and eliminate unsecured junior liens via a process known as lien stripping. These benefits exist almost exclusively within Chapter 13 bankruptcy, so be sure to look into that option if you’re facing repossession or foreclosure.

What Property Do You Own?

Under the bankruptcy code there are two types of property: exempt and nonexempt. Exempt property, such as your home and car, can’t be sold in order to pay back your creditors, because losing that property would leave you worse off than if you had the debt. In other words, you’re allowed to keep your home and car because the government understands that you can’t be expected to live without a home and a car simply because you owe debt. If you own a lot of nonexempt property, such as a second home or a timeshare, you might want to consider an option other than bankruptcy, especially if you’re looking at Chapter 7. Under Chapter 7 bankruptcy you can wipe your financial slate clean, but the trustee in charge of your case can sell any nonexempt property in order to pay back some of what you owe to your creditors.

If you have the income available and can qualify for Chapter 13 bankruptcy, you can keep your property, but you have to commit to a three- to five-year payment plan wherein you pay a specified amount every month. You don’t get to eliminate your debt, but you do get to keep your property. Consider the value and types of property you own when determining whether or not bankruptcy is right for you.

Which Chapter Should You File Under?

Chapter 7 allows you to keep your property and usually wipes your debt slate clean without requiring you to pay back anything. You also get a resolution to your case within a few months. However, this option is usually best for those with limited property and income. If you have a lot of nonexempt property and your income can support a repayment plan, you might consider filing under Chapter 13 instead, which acts like debt consolidation by restructuring the total amount owed to all of your creditors into a single monthly payment.

You must take many things into consideration when deciding whether or not to file for bankruptcy. While these questions can help you narrow down your options, it’s always best to consult a bankruptcy attorney in your area before making any final decisions. Only a bankruptcy lawyer can help you navigate the legal waters and ensure you get the best possible outcome.


Bookmark This Article:
| del.icio.us: Delicious | Digg: Digg | Technorati: Technorati | Newsvine: Seed this article | Reddit: Add to Reddit | Furl: Add to furl | |
| Stumble Upon: Stumble This Article | Yahoo!: YahooMyWeb | Google: Google |