When you have exhausted all other possibilities for resolving your financial problems, bankruptcy may seem like your only hope to free yourself from the burden of debt. However, bankruptcy is not the answer for everyone, and choosing to file for bankruptcy is not a decision that should be made after you’ve understood its implications.
Bankruptcy is a legally binding judgment that can have severe implications for your financial and professional life. Filing for bankruptcy can help you alleviate your financial stress; however, it should never be your first option. If you have exhausted all other avenues of rectifying your debt, here’s what you should know before you choose to file for bankruptcy.
Chapter 7 And Chapter 13 Bankruptcy
Individuals typically file either chapter 7 or chapter 13 bankruptcy most of the time. Chapter 7 bankruptcy is primarily a liquidation, where most of your property is sold to pay off debts. Chapter 13 bankruptcy protects secured assets from being sold and stops collections when you file. Chapter 13 bankruptcy also allows you make payments on reorganized debts for a pre-determined number of years.
You Must Be Eligible To File For Bankruptcy
To be eligible to file Chapter 7 bankruptcy, an independent trustee must analyze your finances to determine if you qualify to file. This analysis includes the last six months of your income, financial history, and any potential abuse of economic systems, such as maxing out your credit cards within 90 days of filing.
You’ll Need To Seek Credit Counseling Before Filing
Unless you are filing for bankruptcy under certain emergency circumstances, you must seek credit counseling before filing. Not only are you required to fulfill credit counseling duties, but you must also complete a debtor education course before any debts are discharged.
Hiring A Bankruptcy Attorney
You should hire a bankruptcy attorney before you file for bankruptcy to protect your interests. A bankruptcy attorney will ensure that you are proceeding in a manner that both protects your interests and meets the court’s requirements. Hiring an attorney will help you avoid potentially costly mistakes during the process of bankruptcy.
Filing For Bankruptcy Requires A Fee
Bankruptcy is not free, and you will be required to pay fees upfront to cover court and filing costs. An initial federal bankruptcy filing fee can be approximately $350.00, and you should consider other costs such as attorney fees, administrative fees, and any program fees required by the court.
Bankruptcy Doesn’t Absolve You Of All Debt
Both chapters 7 and 13 bankruptcy help eliminate unsecured debts such as credit card debt and stop repossession, foreclosure, wage garnishments, and utility shut-offs. Chapter 7 bankruptcy does not eliminate court-ordered child support, alimony, student loans, or tax debts.
Be Fully Aware Of Financial Implications Before Filing
Bankruptcy can alleviate your financial burdens. Before you file, consult with a bankruptcy attorney to understand the full breadth of bankruptcy implications.