Five Things To Consider Before Filing Bankruptcy


If you are completely in over your head financially, you may be thinking of filing bankruptcy. This approach has been likened to hitting the "hard reset" button on your finances, and it can be a good solution if you otherwise have no way to repay your debts and re-establish financial solvency. However, the process is a bit more complicated than most people assume. Before you head into your bankruptcy attorney's office to file, make sure you consider these five factors.

1. There are two types of bankruptcy.

"Bankruptcy" is a bit of a blanket term that actually refers to two different approaches towards resetting your finances. The first, chapter 7 bankruptcy, is what most people think of when they hear the word bankruptcy. Under this sort of policy, your debts—excluding student loans and tax debt—are erased completely. The other type of bankruptcy is chapter 13 bankruptcy. This type is lesser-known. Instead of dissolving debt completely, it involves creating a plan for you to repay part of your debt over a set schedule in the coming years. You may only pay $15,000 back instead of the $80,000 you owe, but you will pay something.

2. Not everyone qualifies.

There are strict restrictions as to who can file bankruptcy in order to keep consumers from just filing frivolously. The courts will consider your debt-to-income ratio, earning potential, and living situation before deciding whether you qualify. Many people do not quality for chapter 7, but do qualify for chapter 13. It's wise to take all of your financial documents, including credit card statements, bank statements, and tax returns, to a bankruptcy lawyer and ask them if they think you will qualify before you go through the rigorous steps of actually filing.

3. You will get to keep certain things.

Some people assume that if you file for bankruptcy, you will have to give up everything of value. This is simply not true. The courts will allow you to keep your personal possessions like clothing and electronics. There may be some cases in which you are required to give up your car -- for instance, if you owe thousands on it -- but the court will work with you to ensure you have the cash to buy a new one. Only in very rare circumstances does anyone who files for bankruptcy have to give up their home. The goal of filing, in most cases, is to get rid of other debt so you can afford to continue making mortgage payments and keep your home!

4. You must pay to file.

Filing for bankruptcy is not free. You will have to pay a fee to the court, and you'll also have to pay a few thousand dollars to the bankruptcy attorney who represents you. Start saving your money now so that you have some of the cash available up-front to pay these fees. Usually, lawyers will require partial payment up-front and will collect the balance later on in your bankruptcy process once the debt has been erased and you have a better cash flow. Expect to pay up to $4,000 total to file for bankruptcy. 

5. It takes time to recover.

After you file for bankruptcy, it will take you some time to recover financially. The bankruptcy stays on your credit report for a few years, making it harder to secure loans. In a way, this is a good thing, as it keeps you from backsliding into debt. Just be prepared for the years-long process of rebuilding your credit and financial history before you file for bankruptcy.

To learn more about filing for bankruptcy, speak to a lawyer about your unique situation and the steps you need to take. 


12 January 2018

Investing in Your Children’s Futures

I was blessed to have grown up in a home with loving supportive parents. They both worked extremely hard in order for me and my sister to enjoy a better life than they had. Financially, they bought me a new car when I was sixteen. They also paid for my college expenses. Many parents do the same for their kids. They want to provide for them in the present while safeguarding their futures. One way parents can invest in their kids’ futures is by placing money in trusts that their children can utilize when they reach a certain age. A reputable attorney can establish beneficial trusts for your kids. On this blog, you will learn about the benefits of consulting with an attorney about setting up trusts for your children.