Consumer Bankruptcy:

Knowing If You Should File

Clearly there can be no universal answer concerning if one should file for bankruptcy.It varies from case to case, based upon levels and types of debt, as well as income and to some degree, personal preference.While harassing calls from creditors when one is unable to pay are incredibly frustrating and upsetting, one should not file for bankruptcy simply to stop them. It may provide temporary relief, but some debts are not discharged by bankruptcy and furthermore, creditors can receive “relief” from the “automatic stay” of bankruptcy and continue pursuing what is owed them. The best advice is to be as knowledgeable concerning bankruptcy as possible before deciding to file. There are some basic things you should consider, including:

The Two Types of Bankruptcy: The two types of bankruptcy for consumers are Chapter 7 and Chapter 13. You should know what each does, their differences, and their long-term effects.

Consider Alternatives: The situation may not be as dire as you think it is. Look into alternatives, such as debt counseling, repayment plans, negotiation with creditors, ways to stop credit harassment, and even, surprisingly, doing nothing.

Ensure Eligibility: Obviously, you need to make sure that you are eligible to file. Prior bankruptcy filings may prevent you from receiving a discharge. Furthermore, there are restrictions that may prevent you from filing for Chapter 7 or prevent you from filing for Chapter 13.

Non-dischargeable Debts: You should know what debts are not discharged by bankruptcy, including child support, alimony, some tax debts, and more.

Consider the Effect on Your Home: Bankruptcy does not eliminate the obligation to pay your mortgage, though, by wiping out other debts, it may make mortgage payments more manageable. However, keep in mind that if you have a good deal of equity in your home and file for Chapter 7, you may lose the home, depending on the nature of the exemption laws in your area. Filing for Chapter 13 will enable you to keep the home, but you would need to include the repayment of any mortgage arrears in your repayment plan.

Effect on Other Property: You should consider the property that you will be able to keep if you file. This depends on the exemption laws in your state and if you have pledged any property as collateral for debt. Also note that if you file for Chapter 7, you could lose your care if you have a good deal of equity in it.

Treatment of Credit Card Debt: For the most part, bankruptcy will eliminate your credit cards debts. However, this may not be the case if you provided false information while filing or if you spent excessively.

Effect on Pension, IRA, 401(k): While pension, retirement accounts, and life insurance are typically not negatively effected by filing for bankruptcy, you should look into the protections provided by your state.

Effects on Cosigners: You should consider, if a friend or relative helped you get financing by cosigning a loan, how filing will effect them. Cosigners are protected under Chapter 13, but not under Chapter 7.

Effects on Personal Life: Keep in mind that bankruptcy may involve revealing every detail of your financial life to the court and also that other people may find out about your bankruptcy. Also, you may lose property under Chapter 7 and may spend 3-5 years asking for permission to spend your own money under Chapter 13.