How to Determine If Bankruptcy Is the Right Choice for You

Making the Choice

How to Determine If Bankruptcy Is the Right Choice for You

If you are overwhelmed with debt, receiving constant phone calls from collection agencies and overdue notices in the mail, and perhaps being threatened with garnishment of wages or foreclosure on your home- it’s time to take an honest look at your financial situation and determine the best course of action.

You have every legal right to file for bankruptcy. But it is not something you should rush into without first evaluating your own particular financial position. Bankruptcy can be an effective and useful means by which you can either eliminate all or most of your outstanding debt, or have it restructured in a way that allows you to pay it off over a certain number of years (usually three to five).

Bankruptcy can provide you with a fresh financial start, but it isn’t the answer to every monetary problem. There are some important things to consider when deciding whether bankruptcy is the right choice for you.

First, you need to understand what bankruptcy can and cannot do.

Here are some things bankruptcy can do:
It can stop the foreclosure process on your home. It allows you time to catch up on any missed payments.
It can stop wage garnishments by your creditors. It can absolve you from legally having to pay most or all of your debts. Your debts are considered “discharged” when your bankruptcy is finalized through the Court.

Creditors are no longer allowed to contact you about your debt - this means no telephone calls and no written notices. It can stop repossession of a car or other personal property.

What a bankruptcy cannot do:
It cannot eliminate certain secured debt- such as a home mortgage or car loan. You can negotiate with these creditors regarding a timely payment schedule, but these debts will not be discharged. If you intend to keep the property (home or car), you have to continue to make payments. Any debts you incur after the bankruptcy are not covered. You are liable for all new debt.

Certain types of debt are never discharged. For example: alimony, child support, student loans, and any unpaid Federal or State taxes cannot be eliminated by bankruptcy.

There are two types of bankruptcy which are available to you. The first is a Chapter 7 bankruptcy. In this case, all debts which are not secured and are not disallowed from discharge are canceled. You may retain any secured property, such as a home or car, as long as you remain current on your payments.

The other option is called a Chapter 13 bankruptcy. In this instance, your debt is not eliminated, but rather reorganized to allow you to make reasonable monthly payments over a period of 3-5 years. Again, this type of bankruptcy allows you to keep valuable property such as your home or car but only if you continue making timely payments.

Your personal financial situation is what determines which type of bankruptcy you are qualified to take. Considerations are your overall outstanding debt (loans, credit cards, etc.) in relation to your annual income. You may have an enormous amount of debt, but also a very high income level. Also, if your debtis too high and income too low, you may not be able to file Chapter 13. You have to show supporting evidence that you will be able to make the payments offered in the reorganization plan.

Be sure the outstanding debts you have are allowed under a bankruptcy filing. There’s no use in filing for bankruptcy if it will offer you little or protection from your creditors.

You need to consider what will happen to your home if you file for bankruptcy. If you are behind in your payments, decide if having your other debt eliminated through bankruptcy will make it easier to bring your mortgage payments current and keep them that way.

Given the current mortgage crisis, you may be one of the many homeowners who now have a monthly mortgage payment that has suddenly ballooned into a much larger sum. Or perhaps your house has a market value well below your mortgage amount. These are things to keep in mind when making your decision.

With thoughtful planning and an honest appraisal of your own personal situation, bankruptcy can be one of a number of different options available to you to help ease your financial burden. Explore all the possibilities and determine the best one for you.

How to Determine If Bankruptcy Is the Right Choice for You

Top Bankruptcy Myths - Separating Fact from Fiction

If you are one of the millions of Americans considering filing for bankruptcy, it’s smart to find out the truth about this process before making such an important decision. There are a lot of misconceptions and rumors associated with bankruptcy. Here we will dispel the common myths surrounding bankruptcy so that you can determine if it’s a good choice for you, given your own financial situation.

Bankruptcy has somewhat of a bad reputation. But the truth remains that it is a legal right which every person has in this country. Yes, there are certain guidelines and conditions which have to be met, but the days when only “deadbeat” consumers filed for bankruptcy are a thing of the past.

With more and more people finding themselves in a never-ending cycle of debt and many faced with foreclosure on their homes, bankruptcies have risen dramatically over the past few years. The forecast is that a record number of Americans will continue to file for bankruptcy as a way to protect themselves from creditors and get a fresh start financially.

So to help you understand the real facts about bankruptcy, here are some common mistaken beliefs and the reality behind them.

I can have all my debts discharged with a Chapter 7 bankruptcy. (If only that were true) Certain types of debt cannot be discharged. These include alimony, child support, unpaid Federal or State taxes, and student loans. So if a large portion of your outstanding debt is comprised of these types of debts, bankruptcy will not make them go away.

My friends and neighbors will know if I file for bankruptcy. While it’s true that bankruptcy filings are recorded in the public records of the specific county where you live, unless you are a prominent person the odds that anyone will ever know are extremely small.

The government will take everything I have. You are not alone in thinking this. Many people envision themselves living in a cardboard box on the side of the road after a bankruptcy. In most cases, you will keep everything you have including your car and your home, as long as you are current with those payments and continue to pay them on time.

No one will ever offer me credit again. The exact opposite is true. As soon as your bankruptcy is discharged by the court, you will probably find all types of notices in your mail offering you credit for a car loan, or personal loan, or credit card. While these companies are legitimate lenders, the down side is that you can expect to be charged very high interest rates and fees for any loan you accept. If you can avoid taking on any new debt right after a bankruptcy, it will be better for you.

It’s so complicated to file for bankruptcy. Not really. Technically you don’t have to hire an attorney, but most experts agree that’s it’s probably not smart to go it alone. Many attorneys charge a flat fee for a simple bankruptcy, so shop around and find one that is fully licensed and whose rates seem reasonable.

Honest, hard-working people don’t file for bankruptcy. The majority of people who file for bankruptcy only do so after months (or years) of struggling to pay their bills only to fall further and further behind. Many times there may be extenuating circumstances, such as a job loss, divorce, or serious medical illness. Whatever the reason, no one should feel ashamed about using a process which legally guarantees them protection from their creditors when there is no other choice.

My credit rating will improve because all of my debts will be gone. Yes, most or all of your debt will be cancelled with a Chapter 7 bankruptcy. But a bankruptcy of any kind is one of the worst negatives you can have on your credit report. It can remain there for up to ten years. If you have been struggling financially for a number of months or years (late or missed payments, etc) the truth is your credit rating has already taken a hit. But you can expect it to drop even further once the bankruptcy is recorded.

I won’t be held liable if I max out my credit cards and then declare bankruptcy. This isn’t advisable. Most attorneys will ask you for your credit card statements going back at least 4-6 months, as well as bank statements. The information you give to the court is “sworn to” so it’s best not to hide any purchases or run up any new ones. Tell the truth about everything.

I want to keep my car and my house, so I just won’t list them on the bankruptcy filing. Bad idea. Bankruptcy requires that you itemize all of your debts, even those you wish to keep. You must list your assets, as well. Furniture, clothing, jewelry, etc. You must be totally honest and open about revealing both your assets and your debts. As long as your payments are current on your mortgage and car loan, you should be able to keep them after the bankruptcy is discharged. But you have no choice in telling the court about them.

If I file a Chapter 13, I will still have to pay off all of my debts. A Chapter 13 bankruptcy reorganizes your debt rather than eliminating it all together. Which type of bankruptcy you are allowed to file for will be determined by you and your attorney after a review of all your financial statements and information. Normally, the court decides what amount you can pay monthly towards your outstanding debts. You then pay one lump sum to the trustee and they pay your creditors directly. Your reorganization plan usually lasts for 3-5 years.

Bankruptcy is a serious matter. You owe it to yourself to find out all the facts so that you can decide if this option is the best one for you. Remember that nothing is forever in the world of credit. Even with a bankruptcy, your credit rating can slowly improve over time. How successful you are depends on learning to manage your money wisely and living within your means.

Top Bankruptcy Myths - Separating Fact from Fiction