When Do You File For Bankruptcy?

If you have been out of a job for the last few months and are now faced with a substantial amount of bills that you have no idea how to pay, you may start entertaining the idea of filing for bankruptcy.

While many creditors in fact are lenient enough in treating people who are on financial hardship, it cannot be denied that some would also be understandably harsh especially when the amount involved is very significant.

Typically, when individuals think of bankruptcy, we think of what is referred to as chapter 7, which is relief from debt. Other types include Chapter 11 for businesses to undergo reorganization and Chapter 13 for restructuring debt.

In Chapter 7 bankruptcy, there is no mention of a debt repayment plan in contrast to the other types. A bankruptcy trustee appraises all your assets and decides which of them may be considered exempt such as a home, car, or other properties under lien which you would like to confirm. Non-exempt assets which include any luxury items bought on credit for the past three months, or extra vehicles for which there is no lien attached, shall be collected and sold in order to pay off part of your debt. The Bankruptcy Code permits the debtors to retain select "exempt" assets and utilize unclaimed equity in their home as a sort of collateral in order to drive down the prices of other non-exempt items which they hope to retain.

To qualify for chapter 7 relief, you are subject to a means test, which looks at your monthly income averaged over the previous six months. If you fall short of your state's median income, you automatically qualify for Chapter 7 regardless of the amount of your liability. However, you cannot file if in the last six months you have received certain types of credit counseling or had a bankruptcy case dismissed because you did not comply with requirements or voluntarily dropped the case.

Since bankruptcy is a complicated case which necessitates tons of paperwork, it would be prudent for you to look for an attorney or firm specializing on bankruptcy based locally to work with you regularly online and by phone.

The case will begin with the filing of an official petition, schedules and a statement of financial affairs in bankruptcy court. Once the petition has already been filed, creditors are frozen from collecting your liabilities, either by annexing your property or filing a case against you. Creditors who are found to have violated this stay will be charged in contempt of court and mandated to pay you appropriate damages.

Bankruptcy may be a win-win prospect especially when you are talking to creditors on the phone, but there is certainly a huge disadvantage in doing it as well. Nonexempt property will be sold to pay creditors, so you might lose a vacation home or family heirloom; it will become part of your credit history for 10 years as well as part of the public record; and the costs of bankruptcy itself can be steep and include court fees, trustee's fees, consumer counseling and a financial education course, even without an attorney.

If you think that Chapter 7 would be the answer to your present predicament, then start evaluating yourself through the means test and compare your income with reference to the state's income threshold. If you cannot meet this test, then look for other solutions by contacting creditors or debt counselors. If in case you're still undecided, schedule an appointment with a lawyer immediately in order to help you better understand the process. Once you have all the facts, the final decision is up to you and one only you can make.

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Originally posted 2010-07-27 22:50:03. Republished by Blog Post Promoter

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