Filing bankruptcy is an undertaking that none of us ever wish to pursue. However, in many cases, it can useful as a last resort for those who find themselves drowning in credit card debts or medical bills. If you are always paying your bills late, or if you notice other signs that it may be time for you to file bankruptcy, ask yourself the following essential questions, first.
The first questions to ask before filing bankruptcy involve thinking through the details which will influence whether or not you should file for chapter 7 or chapter 13 bankruptcy, the two kinds bankruptcy that can be filed on an individual basis.
The “chapters” from which the two types of bankruptcy take their names are parts of the Bankruptcy Code of the United States Courts. Chapter 7 provides for the liquidation of the filer’s eligible properties. In other words, filing chapter 7 bankruptcy allows you to sell your assets for money which will then be distributed amongst your creditors to pay your debts.
Unlike chapter 7, a chapter 13 bankruptcy can also be named a wage earner’s plan. In simple terms, chapter 13 of the Bankruptcy Code allows those with regular monthly income to establish a plan leading to the payment of their debts. These monthly payment plans are usually designed to last for three to five years, depending on your monthly income.
Your lawyer will be able to help you answer this question, but it’s an important one to ask nonetheless. An asset that is exempt in one state may not be exempt in another, but any asset that you own which is not exempt from seizure will be liquidated if you choose to file chapter 7 bankruptcy. If you are filing for chapter 13 bankruptcy, ownership of non-exempt assets may result in a higher monthly payment plan. Knowing which assets you are eligible to keep in your possession and which ones you may lose in bankruptcy will be informative as you decide on your next steps.
Think ahead. This is one of the most important questions to ask before filing bankruptcy. It can be easy to feel like there’s no escape and that filing bankruptcy is your only option. However, there are some debts that cannot be dismissed in bankruptcy, such as student loan debts. Also, the effects of declaring bankruptcy are, unfortunately, longstanding. Your credit report will demonstrate your status for the following ten years, which may have effects down the road, and your bankruptcy declaration will become a part of the public record. However, filing bankruptcy has resulted in relief for many individuals. Given that this is not a process to be taken lightly, your bankruptcy attorney will help you to weigh the pros and cons before making your final decision.
You may be reading this line again and again in disbelief, a sinking feeling in your stomach, but filing for bankruptcy is, counterintuitively, not free. You will want to consider this question and make thorough inquiries about filing fees when you consider how filing bankruptcy will positively or negatively affect your financial future.
In order to qualify for chapter 7, you will need to pass a means test, which is how courts determine whether or not you will be able to pay your debts. The main factor that plays into the results of your means test is the amount of disposable income you earn per month. (To calculate your disposable income, subtract your specific, monthly expenses from your total income per month.) Even if you earn a significant monthly income, you may still be eligible to file chapter 7 bankruptcy if you have a large number of monthly expenses. Your attorney can help you review your paystubs and expenses during your initial consultation.
You might remember when tackling the first few questions to ask before filing bankruptcy that filing for chapter 13 means that, instead of liquidating your assets, you are allowed the opportunity to work with a judge to establish a payment plan over three to five years. During that time period, your creditors will not be allowed to continue their collection efforts. If all of your payments are made successfully throughout the amount of time determined by you and the judge, the remainder of your debts will be discharged. While this is an excellent option for individuals who have a mortgaged car or home or other assets that they don’t want to lose to chapter 7 liquidation, planning ahead is essential. You will want to ensure that you fully understand the number of months in your payment plan, as well as the amount you must pay each month.
Your bankruptcy lawyer will want to help you, so don’t be afraid of asking personal or complex questions. With an experienced legal team accustomed to working in bankruptcy court, there is no question too small or too complex. Filing bankruptcy isn’t an ideal situation, but communicating well with your attorney and knowing all the right questions to ask before filing bankruptcy can make the process more bearable and minimize unpleasant surprises.
Once you’ve asked yourself these questions and found some answers, you’ve done a lot of work and already taken some huge steps. With your new discoveries in mind and a personal plan to move forward, you’ll be well on your way to taking charge of your own finances (and your life) again.
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