A Few Things to Consider When Thinking About Filing for Bankruptcy

If you have been continuing to struggle with your debt over time and you are interested in keeping up with their payments while still handling your day-to-day living expenses, it may be a good idea to consider filing for bankruptcy.

Bankruptcy can have a number of benefits when it comes to starting over and of avoiding negative consequences associated with keeping ongoing debts. It does require a big decision as bankruptcy can affect your credit and affect your overall financial picture for several years after you decide to file.

By completing some due diligence and research you can go over some of the best key points in bankruptcy to make sure that you can prevent a serious mistake if you were to file too early on or if filing for bankruptcy is not the right solution for you. Here are some of the top things to consider about filing for bankruptcy:


What is your eligibility?

There are two main types of bankruptcy that you can file for as an individual. You can qualify for two different types of bankruptcy in filing. These are Chapter 13 and Chapter 7.  

The two different chapters differ greatly in their requirements:

Chapter 7: this is a program that will allow you to discharge your debts with a few exceptions. In a Chapter 7, you can still keep your home if you are current on payments as well as your vehicle.  The process typically takes approximately 5-6 months from start to finish. Chapter 7 is NOT a repayment plan. However, not everyone qualifies for Chapter 7 due to having a higher income. Chapter 13: This is a repayment plan in which you will repay some or all of your debts over 3 to 5 years. Not every one of your debts will be discharged and you could be obligated to sell property or assets to make your payments.  Chapter 13 is most helpful to those who are behind on their mortgage, as it provides a 3-5 year period for the individual to catch up on their overdue payments.

Either of these solutions could be beneficial depending on your situation. Using Chapter 7 bankruptcy involves taking a means test in which you must prove that you cannot afford to make your debt repayments. If your monthly income is less than the median monthly income of your state you will pass, otherwise there’s complex calculations that will subtract your most basic expenses from your salary and then your monthly debt obligations. Working with a professional bankruptcy lawyer could be a good idea if you are unsure whether you qualify for Chapter 7.

With Chapter 13 you need to show that your disposable income is high enough to garner a reasonable repayment plan.

Consider your assets and liabilities:

Bankruptcy can often mean getting rid of some extra assets and liabilities. The types of assets that you own and the value of them can typically matter. Your house and car are typically protected under specific limits. Retirement accounts like 401(k)s and 403 bees are also protected and IRAs are generally protected. Extra assets like holiday homes, extra family vehicles and more could be considered as a settlement value that you could use in bankruptcy. Certain investments may also need to be sold off in order to satisfy your debts.

What alternatives to bankruptcy could you use?

Negotiating debt is usually a good idea to begin with. There can be some serious consequences to bankruptcy and it will appear on your credit report for up to 10 years. Evaluating new options before making a decision and contacting your lenders for a lower interest rate or a repayment plan can be a wise idea first.

If you’d like to learn more about bankruptcy and the options available to you contact our bankruptcy lawyer today for more information.