How to Know If You Need to File Bankruptcy
Before filing for bankruptcy, you need to decide how it will affect your financial situation and your life. Deciding whether bankruptcy is really necessary should involve many considerations that represent many aspects of your life, both financially and otherwise. Bankruptcy cannot be reversed once it has been filed, so be completely sure it is the only solution to your financial problems.
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Instructions
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Deciding Whether Bankruptcy is Right for You
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Learn about the types of bankruptcy that are available to you and how they differ.
Chapter 13 and Chapter 7 are the most common filings for individuals. Chapter 13 involves the scheduled repayment of debts without interest while Chapter 7 eliminates the necessity to pay back debts owed (minus medical bills or student loans).
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Make sure you are eligible to file for bankruptcy.
Come up with several hypothetical budgets and investigate credit consolidation programs. Use a calculator and your current bills including your mortgage, car payments, utility bills, credit card statements, and any loans. Include all bills, even if you are behind on paying them.
If you can come up with any other way to pay for your debts, you won't be eligible to file for bankruptcy. If your budget shows that you might be able to repay the debts over time, you may be eligible for a Chapter 13 bankruptcy but not a Chapter 7. Bear in mind that bankruptcies have income limits that vary by state, so make sure that you are not over the limit to file based on last year's tax return.
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Understand the procedures and laws.
Secured debt such as mortgages and vehicle loans can be filed in a bankruptcy, but the bank may foreclose on your home or repossess your vehicle in the process. Consult with an attorney (most offer free consultations) to determine what would happen to your home and cars, as well as your investments or retirement accounts, in the event of a hypothetical bankruptcy filing.
Note that some debts cannot be included in a bankruptcy. Student loans, child support and medical bills are among such debts.
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Consider cosigners.
If you have cosigners on any loan, credit card or even a rental agreement, your cosigner may become responsible for your debts.
Talk to your cosigners before filing a bankruptcy. They might be able to work with your and pay off the debt before filing.
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Consider how bankruptcy will affect your personal life.
Bankruptcy statements remain on your credit report for up to 10 years, making it more difficult to obtain loans for cars, mortgages or even rental property, even if your financial situation improves years down the road.
Bankruptcy should be the last choice when evaluating ways to fix your financial woes. It can be invasive and have lasting long-term effects, but for some, it is the only option to fix their declining credit scores. Carefully consider how it will affect your personal life before filing.
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Tips & Warnings
Visit with a bankruptcy attorney before deciding whether to file. The attorney can help you simulate what your financial situation would be like after filing.
