If you are searching for information on declaring bankruptcy, chances are you’re doing so with good reason.
Perhaps you’re inexplicably behind on paying your bills, or experiencing a sudden financial hardship such as job loss or unexpected medical bills. While filing for bankruptcy is a way to wipe your financial slate clean of such burdens, it is not an action to be taken lightly, and it is certainly not the right action for everyone. Below are five questions you can (and should!) ask yourself to help decide if declaring bankruptcy is the best option for YOU.
With the changes enacted by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), more roadblocks than ever stand before those considering bankruptcy as a means to resolve their debts. These roadblocks include more stringent rules governing who can or can’t file for bankruptcy, additional filing requirements and fees for those who do qualify, and increased risk and liability for attorneys representing debtors. Before filing, your attorney will require you to fill out extensive paperwork detailing your assets and liabilities so that they can definitively determine:
Chapter 7 and Chapter 13 are the two most commonly filed forms of bankruptcy; if you file, you will most likely file one of the two. The American Bar Association provides a great side-by-side comparison of Chapter 7 and Chapter 13 bankruptcy, but the basic differences are as follows:
In bankruptcy proceedings, a debtor may choose to sign a reaffirmation agreement, or a commitment to continue payments on a debt despite the fact that bankruptcy could discharge it. You may wonder, why on earth would I want to do that?! A debtor might choose to sign such an agreement with a secured creditor (such as an auto or home lender) in order to keep the asset in question and prevent the secured creditor from repossessing the item.
Just as filing for bankruptcy is a way to wipe your financial slate clean, it is also a sure way to plummet your credit score. Bankruptcy remains on your record for years (typically 10 years for Chapter 7, and seven years for Chapter 13), and it will make things like applying for new credit or a new job more difficult.
This is why filing for bankruptcy should be a last resort taken only in dire circumstances. According to the Federal Reserve, a typical bankruptcy filer owes more than 1.5 times his or her annual income in short term, high interest debt. If that doesn’t apply to you, or even come close, you may want to consider alternatives to bankruptcy.
In many ways this should be the first question you ask yourself before filing for bankruptcy, but we’ve listed it last in hopes that it will be what you walk away weighing most heavily.
Now is the time to be honest with yourself about the root of your financial woes, and to face it head-on. If not, you will likely find yourself in financial trouble down the road with or without filing for bankruptcy. If the root of your problems is poor budgeting and overspending (and your debt is not entirely overwhelming) you may benefit more from changing your spending/saving habits and renegotiating the terms of your debt to a manageable level than from filing for bankruptcy.
If you decide that bankruptcy is your best option and you’re ready to get started; if you think it might be your best option but you need a second, professional opinion; or if you’ve decided that renegotiating your debt rather than discharging it is your best bet, give us a call. Whenever you’re ready to forge a fresh financial start, we’re ready to help.
To get in touch with us, give us a call! In Kentucky, call (270) 388-9951, or for our Tennessee office call (931) 647-9976. You can also like our Facebook page, or shoot us an e-mail! We would be happy to assist you.
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