The bankruptcy laws are broad in scope and effect; hence the only way to take an effective call on bankruptcy is by figuring out the way it works, its pros and cons, and the way it will affect your case. So when mulling over bankruptcy, it works smart to hire a bankruptcy attorney and bank on expert advice. That being said, here are a few pointers to ponder on when you ask yourself, “Should I file bankruptcy?”
1. What type of debts do you owe?
While you can wipe out unsecured debts completely, it is not necessarily the case with secured debts. Even if you earn a complete let off on secured debts, there is a high chance of doing away with your property. All the more, bankruptcy laws do not allow certain debts to be discharged — student loans, child support, alimony etc.
So before plunging into bankruptcy, consider the type of arrears you hold to value your move.
2. Are you done trying all available options?
One of the painful aspects of filing bankruptcy is that it hits your credit score hard. Getting back to a healthy credit score will require years in time and sweat. Besides, bankruptcy can reflect on your credit report up to ten years, which makes the prospects of getting a loan, credit card, or any type of credit very bleak.
Therefore, you should try out everything in the book before filing bankruptcy. Negotiations with creditors, selling off assets, debt reduction and consolidation are some readily available options to try out.
3. Which bankruptcy should you file?
As you get more certain on bankruptcy, you need to have a closer look at bankruptcy laws. Chapter 7 and 13 are the two brackets to file personal bankruptcy under. While chapter 7 can completely lay off all unsecured debts, you can lose your assets, partially or wholly. Chapter 7 also lays down certain ground rules that can qualify some of your assets as “exempt”, which means they are safe from being sold off during bankruptcy procedures.
Chapter 13 is a better option only if you have a regular income-flow. Under chapter 13, you are thrown open an opportunity to repay a part of your debt, in lieu of a complete pay back. However, the repayment generally takes 3 to 5 years, during which any missed payments can lead to selling off your assets. The brighter side though is that once you are through with your repayment, your assets are no more liable to go under the hammer.
4. Bankruptcy bail out: A pricey affair
As you go hunting for solutions to “Should I file for bankruptcy?”, note the fact that it can turn out to be a costly affair. While corporate and business bankruptcies necessarily require an attorney, you can file personal bankruptcy on your own. Hiring an attorney however is best for your own interests as professional expertise can earn you certain important rights and ascertain the best move for you. An attorney, though, will cost you more than a handful, but this is one engagement that should be its money’s worth. Besides the attorney, there will be filing costs as well, which will depend on the state you are filing under.
5. How long should I wait before I file bankruptcy?
There is no definitive moment to filing bankruptcy. Individual circumstances are vital, try and make all possible moves before you resort to bankruptcy; this includes negotiations with your creditors, debt settlement and counseling, debt restructuring etc. For the best, exhaust all options before turning to bankruptcy.
6. Should I file bankruptcy during foreclosure?
You can turn to bankruptcy while your home is facing foreclosure, but primarily to buy time on foreclosure. As soon as you file bankruptcy, the foreclosure will be placed on hold. In fact, you can earn a chance under chapter 13 to repay your lenders in accordance with a legally drawn repayment plan. However, this may not be a very wise move to make if the financial crunch is not off your way yet, for the repayment will not only include the current overdue but payments you have missed over time as well.
You can also consider chapter 7 but only if there is enough equity in your home. Your home shall be sold off to clear away all your unsecured debts. On a good sale, you may land with some money yourself. However, if the home equity falls short of meeting your mortgage overdue, foreclosure will follow.