How to Weigh Bankruptcy Consequences

You may have a stack of bills every month that you can't pay. The late fees are piling up and high credit card balances with outrageous interest rates don't help your situation. As you look at your finances, you realize that bankruptcy may be a good solution for you. Even if this is where you are financially, you shouldn't file for bankruptcy until you've weighed the consequences associated with bankruptcy. Read on to learn how to weigh bankruptcy consequences.

Instructions

1. Weigh the consequences of bankruptcy by meeting with a credit counselor to review your assets and liabilities. Companies like Hummingbird Credit Counseling go over the pros and cons of bankruptcy and recommend what they feel is your best course of action.

2. Talk with a bankruptcy lawyer. Bankruptcy lawyers offer a consultation for a small fee and provide you with information on current laws. Use this meeting to ask questions and address concerns you have with filing bankruptcy.

3. Know what type of bankruptcy you can file. Chapter 7 bankruptcy discharges all allowable debts under the bankruptcy laws. In order to file a Chapter 7, you may have to pass a means test that shows your income is below the required state level for a Chapter 7. If you make too much money, you'll have to file Chapter 13, which is a repayment plan. You'll still eliminate a large portion of your debt, but you do have to fulfill the repayment plan.

4. Realize that you might lose your home or possessions. Most states allow you to keep a certain amount of equity in your home, car and possessions. However, if you have more equity than the allowed amount, your court appointed trustee sells any non-exempt assets. You need to weigh if it's worth the consequence of losing a few things in order to eliminate your debt. If you have enough assets, you might want to sell them yourself and pay your debts off.

5. Say goodbye to good credit. Filing for bankruptcy shows on your credit report for seven to ten years. Even after that, some creditors can find this information and refuse you credit. Rebuilding your credit takes effort and time. While you may not be able to buy your dream home any time soon, you can get a home loan within two years of filing bankruptcy.

6. Plan on paying your new debts. Bankruptcy laws prohibit you from filing for another bankruptcy for the seven years following your bankruptcy. Some debts like your mortgage can be reaffirmed which makes them exempt from the bankruptcy. You need to weigh this consequence to the possibility of unplanned medical expenses or a failed business in the next few years.

7. Make your student loan payments. These generally cannot be discharged even if you do file bankruptcy. You might be able to get forbearance and delay payments for up to a year. Once you file a bankruptcy, some student loan companies may refuse to grant a hardship, deferment or forbearance period.

Resources

• Weigh the Consequences of Bankruptcy With Hummingbird Credit Counseling