Chapter 7 Bankruptcy – Learn all you need to know about it

What Is a Chapter 7 Bankruptcy

Bankruptcy is the process by which a person can relieve himself of some or all of this debts under the guidelines laid down by the bankruptcy law.

Chapter 7 bankruptcy allows the discharging of debts after going through the process of liquidation of eligible assets.

The liquidation allows the borrower to pay back the creditor fully or partially, mostly partially. The assets that can be liquidated and those that are exempt is decided by the bankruptcy state law.

Any debt that remains after asset liquidation is discharged and the borrower can no longer be held legally liable or responsible to pay it.

The creditors or collectors will not have any rights to pursue recovery of the debts that have been discharged.

A chapter 7 bankruptcy will usually be discharged within 4 months of filing.

Information Needed to File a Chapter 7 Bankruptcy

The filing of a chapter 7 bankruptcy starts with the process of putting in required forms and information with your local bankruptcy court.

The information and the paperwork that you will usually have to provide during the time of filing is as follows:

  • A schedule of assets and liability which lists all your creditors and the nature of your debt claims.
  • A statement of current income and liabilities which must include your source of income, amount along with your monthly living expenses.
  • ‘A statement of financial affairs’ form will need to be filled out. This form will ask questions pertaining to your income over the past three years, debts you owe, repossessions, foreclosures etc.
  • A schedule of executory contracts and unexpired leases that you have not yet fulfilled.
  • You need to provide the court with a copy of your most recent tax return and any other returns you file while your bankruptcy case is still open.
  • If you have a lot of consumer debt as opposed to personal debt you will need to file a certificate of credit counselling completion from a government approved credit counselling agency along with a copy of any debt repayment plan that has been proposed by the agency.
  • It is mandatory to receive credit counselling from an approved credit counselling agency not later than 180 days prior to the bankruptcy filing.

What Happens After You File for Chapter 7 Bankruptcy

The first thing to happen after a chapter 7 filing is that a trustee is assigned to the bankruptcy case. The exception is if you live in Alabama or North Carolina where a member of the bankruptcy court fulfils the function of a trustee.

The job of the trustee is to review the assets and determine which ones are exempt and which ones are non-exempt. Non-exempt assets are absorbed by the state and sold to pay back the creditors that you owe.

Assets that are exempt cannot be taken by the state and remain under ownership and control of the debtor.

If the trustee funds that all your assets are exempt then he will file a “no asset” report with the bankruptcy court.

It is a fact that most chapter 7 bankruptcy cases are no asset cases.

In case your bankruptcy filing involves non-exempt assets your creditors are allowed to file a claim for the distribution. They are given 90 days after the first date set for the meeting of the creditors to file their claims. The government creditors will have 180 days to file their claim.

Usually between 20 to 40 days after filing for bankruptcy the first meeting of the creditors is held. The borrower who is filing is required to attend along with the trustee assigned to the case.

The creditors are allowed to ask the trustee and the consumer questions about finances and assets. If the bankruptcy has been filed jointly with a spouse then both of them need to be present at the meeting.

Chapter 7 Bankruptcy Means Test

The U.S. government has passed a law that is meant to test a consumer’s claim to a bankruptcy.

The means test is designed to prevent abuse of the bankruptcy system and ensure that the consumer is truly unable to pay off his current debt.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires this step.

If the current monthly income is less than the median income for a household of your size in your state, you pass. You do not need to complete the rest of the means test. You can file for Chapter 7.

If a person makes more than the state’s median income the calculations get complicated. The court will try to arrive at projected monthly income over the next 5 years. It is best to consult a bankruptcy attorney or an accountant who specialises in bankruptcy at this point.

If you fail the means test, the bankruptcy filing will either be rejected the court or given the option to be converted to a chapter 13 bankruptcy filing.

How to Qualify for Chapter 7 Bankruptcy

Chapter 7 bankruptcy is typically harder to file than a chapter 13 bankruptcy. Also a chapter 7 bankruptcy stays for a longer period of time on the credit report of the borrower.

There are a few conditions and tests that an individual needs to pass before he can qualify for filing. The following are the requirements for filing under chapter 7 bankruptcy.

  • Your income must qualify the means test.
  • A person can only file for a chapter 7 bankruptcy if the monthly income is below the state’s median income for the family of his/her size. The consumer is required to go through the means test if more than half of his debt is from consumer purchases rather than business, tax or tort debts.
  • You need to be an individual, married couple or a small business owner to qualify. You cannot file a chapter 7 bankruptcy on the behalf of a Corporation, LLC or a partnership.

You can file a chapter 7 bankruptcy if you are:

  1. An individual married and filing jointly with your spouse.
  2. A sole proprietor with personal liability on business debts.
  3. Half owner of a business partnership with someone other than your spouse and are filing bankruptcy on business debts that you have personal liability on.

How long does it take to discharge a chapter 7 bankruptcy

From the date the papers are first filed till the time that debts are discharged it takes usually takes about 4 months.

Discharge papers are automatically sent to all creditors letting them know that the debt has been discharged and that the creditors no longer have any legal right to try and collect the debt from the consumer any more.

A chapter 7 bankruptcy will remain on the credit report of the consumer for a period of 10 years and the person cannot file another chapter 7 bankruptcy for another eight years.

The same person will also not be able to file for a chapter 13 bankruptcy for another 4 to 6 years, the exact duration of which must come from your local court or a qualified attorney.

Costs of Filing for a Chapter 7 Bankruptcy

The filing for a chapter 7 bankruptcy costs a total of $309.

The breakup of this amount is as follows: The filing fee is $245, $39 for miscellaneous expenses and $25 for the trustee fee.

These are the official government fees and charges. If you choose to hire an attorney yourself it will be an entirely separate expense. The bankruptcy filing charges are supposed to be paid to the clerk of court when you file your bankruptcy paperwork.

It is possible to get the permission of the court to make the total payment in a maximum of four instalments.

In such a scenario the final payment is due no more than 120 days after you file. It is possible to get the bankruptcy fee waived altogether if you make less than 150% of the poverty level and you cannot afford to pay the fee at all even on instalments.

Not paying the bankruptcy fee when it is due will result in the bankruptcy filing being dismissed.

How to avoid filing for bankruptcy

Usually there are many reasons why a person might want to avoid filing for bankruptcy. For one, a recovery from a bankruptcy filing, from a credit standing point of view, can be difficult. This is especially true when the economy is facing a down turn and lenders are already sceptical about lending money. Of course, taking on further debt right after your have filed for bankruptcy should be the furthest thing on your mind. However, in order to get back on your feet you, this might the hour of your greatest need as well.

We have dealt with the topic of how to recover from bankruptcy in several posts in this section. Have a read through them. In the post we are going to talk about how you can avoid filing for bankruptcy if at all it can be helped.

Avoiding Bankruptcy by Paying Off Your Debt

Many people are unaware that if you file a chapter 13 bankruptcy you have to come up with a repayment plan to pay off your existing creditors. This payment plan usually does not require a payment in full and several of your assets can be exempted from debt recovery. However, you may find it will worthwhile to consider if you can pay off your creditors without filing for bankruptcy. You need to take a closer look at your budget and expenses. You will probably need to cut down on surplus expenses you can do without such as cable television, cell phones and entertainment bills.

You can also explore if there is a way to increase and supplement your existing income in some manner. Maybe you can use one of your hobbies or skills to work over weekends to make extra money. Maybe you can work overtime or take on an extra job. If your spouse’s the non-working member of the family maybe he or she can take on a part-time or full-time job as well.

Avoid bankruptcy by taking help from family and friends

Borrowing money from family and friends is never easy. When money matters are included between people who love each other it can easily create misunderstandings and hardships in the relationship. At the end of the day it all depend on who you ask and what kind of relationship you share with that person.

Before you ask your family or friends to help you pay off your debts take a close look at your own financial resources. Be honest about how much you can come up by yourself rather than rely completely on borrowed money.

Calculated the maximum amount money that you can pay yourself and then presents the marginal amount to the people you are seeking help from. Also come up with an organised plan to to pay them back. If it is going to take you a while before you can pay the money back, make them aware of this.

Be perfectly honest with yourself as well as the people you are borrowing money from so that there are no misunderstandings in your personal relationships.

Avoid Bankruptcy by using credit counselling services

Taking the help of a consumer credit counselling is an alternative to filing for bankruptcy in two ways. First of all a consumer credit counselling can help you manage your finances and come up with a budget that creates more disposable income on your current income source.

They can educate you to how to manage your finances better so that you have the ability to start paying of your current debt. The important thing is to find a legitimate and accredited consumer counselling service.

The second way in which a consumer credit counselling service can help you avoid bankruptcy is by enrolling you in a debt management plan. A debt management plan typically works by reducing your payment and interest rates with a creditors. A consumer credit counselling service that has an experience with working in this field will be able to consolidate all your debts and negotiate with your current lender is in order to reduce your monthly payments and interest rates.

Credit counselling is worth considering since the new bankruptcy law makes it mandatory for any person filing for bankruptcy.

Avoid bankruptcy by settling debts

You may think at this point that if you could pay off debts you would not be filing in the first place. But settling debts is different from actually paying them off.

Settling debts involves speaking to the creditor and negotiating the amount you can pay back.

You may be surprised with how much a lender is willing to settle for once you convey the true nature of a financial hardship.

While settling debt is also not very good for the credit score it is preferable to filing for bankruptcy. Using a debt settlement company at this point may not be a very good idea as they will add to the cost and in some cases cause dire harm to your credit rating. You should first settle the debts that have been sent to a collection agency for recovery.

Before you try and negotiate with the creditors and the debt collection agencies to settle a debt make sure that you need to know how much you can afford to pay back. This way you will know what offer to make to the creditor.

Try and be prepared to make the payment as soon as an agreement is reached. Sometimes the very basis of a settlement is that a creditor wants his money back sooner than later even if the amount is lesser than what is owed to him. The agreement may also be reached on the basis of making the repayment soon.

Avoid bankruptcy by liquifying your assets

When you do not have ready liquid finances to pay off your debt you can use your intangible assets to repay some of the money you owe. Take action as quickly as possible and see if you can sell off some of the furniture, jewellery and electronics to get additional funds. Selling of items on eBay, craigslist etc. can provide you with the funds that you need to avoid bankruptcy.

You may want to consider this because while a bankruptcy filing may be able to get rid of your loans for the moment it may damage your credit rating so severely that you may find yourself bereft of a lot of services and utilities in the future. You may find it difficult to get a house on rent, qualify for a loan, get a credit card or even gain employment.

Selling off some of your assets may result in some inconvenience and discomfort. But it just might be the step you need to take you get back up on your feet and start with a clean slate.

Avoid bankruptcy by taking help from your creditors

When you are genuine facing financial hardship you may find that your creditors are more helpful than you expected. Before you come to the point where you start getting delinquent on your payments or considering filing for bankruptcy, try to communicate with your creditor.

Most of the creditors would like to recover as much of the money they have lent rather than go through the lengthy process of bankruptcy repayment plan where they may or may not get their money back.

In stead of going to court, they may prefer to come up with a repayment plan that will allow you to make pay them back, if not fully then partially. A creditor may be willing to lower your monthly payment or the amount owed in order to ease the burden of your loan.

Many credit card companies and banks also have hardship programs which are intended to help consumers facing problems with repaying their debt. The first step is communicating with the creditor and enquiring if such a program exists.

Before you enter into any hardship program make sure that your payment and interest rate actually go down. It is just possible that you could be stuck with an even higher minimum payments than before.

7 tips to find a good bankruptcy lawyer

A bankruptcy attorney or lawyer is the best person to consult with matters pertaining to filing of bankruptcy.

One decides to file for bankruptcy usually when the debt burden has become an impossible strain on the finances and one cannot see any way of actually paying off or settling the debt. Filing for bankruptcy is a process by which you can relieve yourself of all or most of the debt.

Why you need a bankruptcy lawyer

Filing for bankruptcy is not a decision that a person takes without serious consideration. In all cases professional advice must be sought. This is where the assistance of a bankruptcy attorney comes in.

Filing for bankruptcy can be a very complicated process with several legal procedures to comply with. With the amount of paperwork that one typically needs to complete, the bankruptcy process can get confusing and time-consuming. You should let a bankruptcy lawyer take care of this procedure for you.

A good bankruptcy attorney is also needed to give you the right advice as to whether your should file for bankruptcy or not. A good and capable bankruptcy lawyer will always look at your situation individually and consider whether an alternate course of action is better for you.

where to look for a bankrupty lawyer

How to find a bankruptcy lawyer

Finding a bankruptcy attorney in the yellow pages

The Yellow Pages can be a helpful resource when looking for bankruptcy attorney. The Yellow Pages can categorise the attorneys by their field of specialisation. However, it is difficult to just pick out a bankruptcy lawyer from the Yellow Pages. It of Yellow Pages. In order to choose an adequate bankruptcy attorney user you will need some kind of recommendation or referral.

If you are already know an attorney who is either a friend or handles some other business for you you can ask him for who recommendation for a good bankruptcy attorney. Usually you might be able to get some good suggestions and recommendations as bankruptcy attorneys and other attorneys are basically a part of the same professional circle.

Ask you family and friend to refer a bankruptcy lawyer

Someone you know and trust is quiet often a source for a lot of referral information. A bankruptcy attorney is no different. Ask your trusted friends and family. Even if they do not know a bankruptcy lawyer, they are likely to know a good lawyer who can further recommend a lawyer specialises in bankruptcy law practise.

Look for lawyers specialising in bankruptcy law

You should always look for lawyers who actually specialise in practising bankruptcy law. The National Association of Consumer Bankruptcy Attorneys (NACBA) is a well respected organisation. It also offers a list of attorneys who are registered with them. If you have discovered a bankruptcy lawyer on your own, check their website to see if he is registered with them.

Contact your state bar association

Every state has a bar association. The websites for these associations often have a lawyer referral service. You can find bankruptcy lawyers practising in your city by going through this resource. Bar associations also field complaints against lawyers. So this might be a good place to do some research on a lawyer you are considering as well.

Look online

You can do a search engine research. You will come across websites of firms and individual lawyers. These websites are a good place to discover more information about the law firm or the lawyer. You will get to know what kind of services are being offered. You can also check the specialisation of the lawyer and whether he practises bankruptcy law as his profession. The website have contact details like email address and phone numbers. You can use these methods to get more information and possibly to set up an appointment. You may aim for lawyers who are available for a free consultation to review your case. All the good ones will be willing to do this.

Choose a bankruptcy lawyer you are comfortable with

First of all, there are several red flags that you should know about. For example, a bankruptcy lawyer or a firm that gives you a quote or a fee without hearing your case may not be interested in giving you personal attention or considering alternate an alternate course. You do not want a lawyer who is indifferent.
Certain law firms may be case mills where they deal in bulk cases every month. You will not get the attention you want and neither will your case.
If an attorney is not interested in exploring your situation by examining your income and assets to determine if alternate solutions are possible, you are better off moving on.

In some cases you might meet a perfectly competent and experienced bankruptcy lawyer, who is charging you the right fee, and yet does not make you feel comfortable. It is advised by professionals that in the long run, it is still beneficial to move on and find someone you comfortable working with.

Find a bankruptcy lawyer who charges the right fee

Bankruptcy lawyer may charge you anywhere from $1000 – $3000. In certain states the courts put a cap as to how much a bankruptcy lawyer can charge.
More expensive law firms are not necessarily better as you might not personal attention. However, you are likely to find more experienced attorneys. Similarly, smaller lawyers do not necessarily give poor service although the experience might be lacking. At the end of the day, you cannot decide on a bankruptcy attorney solely on the basis of the fee. Take all factors in to consideration.

When You Should Not File for Bankruptcy

Bankruptcy may not be the right option to you if any of the following points are true.

You can repay your debt yourself in the next 3 to 5 years or by using a credit counseling service. A debt management plan is definitely a better alternative to filing for bankruptcy as long as you use a legitimate credit counseling service to implement the plan.

If your debts are the kinds that cannot be wiped out by a chapter 7 or chapter 13 bankruptcy such as student loans, child support and unpaid taxes, bankruptcy may not reduce much of the financial burden. However, if filing for bankruptcy helps you to discharge off certain other debts; you may find it easier to pay off these debts that cannot be discharged under the bankruptcy law.

You cannot file for bankruptcy if you lie about your income, or have committed fraud by lying to your creditors about assets or information on your credit application.

You cannot file for bankruptcy if you have ran up large amount debt buying luxuries recently which include vacations and entertainment. Doing this while you are supposedly broke can constitute fraud. If you ran up a debt on luxuries and then lost your job you might be able to file for bankruptcy but the bills on the luxury expenditures might not be wiped out.

You cannot file for a chapter 7 bankruptcy if you have received a discharge for a previous bankruptcy within the past six years.

You may want to rethink filing for a chapter 7 bankruptcy if you have equity in a home or away per or other property that is non-exempt under the state law.

Choosing the Right Kind Of Bankruptcy Plan Between Chapter 7, 13 And Others

It is important that you choose the right bankruptcy plan to yourself. Since bankruptcy laws are completed it is best to consult a professional attorney who will guide you. He will be able to tell you about the advantages and disadvantages of choosing between a chapter 7 and a chapter 13 bankruptcy in your particular circumstances. Every situation is different and needs to be analyzed carefully before deciding which plan of bankruptcy filing to choose. These are the following a few points that person should keep in mind.

Filing for chapter 7 bankruptcy can result in losing and assets that you might want to keep such as your home.

Choosing a chapter 7 bankruptcy may help you discharge most of your unsecured debts and allow you to keep most of your assets.

You need to pass the means test to prove that your income is not higher than the median income for your state for your size of the family.

You can only file for a chapter 7 bankruptcy if you can pass the means test.

Chapter 13 bankruptcy will require you to build a repayment plan to pay off your creditors.

The repayment plan in chapter 13 bankruptcy will be executed through the court which means that you will make your payments to the court as per the repayment schedule.

The repayment schedule will begin even though the court has not yet heard it and approved of it.

People commonly filing for chapter 13 bankruptcy plan are unable to complete their payment plans which results in their cases being dismissed, allowing the creditors to resume efforts on collection of the debt or allowing the consumer to convert his bankruptcy to a chapter 7 bankruptcy.

How to Decide between a Chapter 7 and a Chapter 13 Bankruptcy

When filing for bankruptcy you’ll have the choice of filing a chapter 7 and a chapter 13 bankruptcy. A majority of people choose to file for chapter 7 bankruptcy as that discharges almost all unsecured debts. It is also a fact that while chapter 7 bankruptcy uses assets that are non-exempt under the state law to pay back your creditors, many consumers filing for chapter 7 bankruptcy are able to retain most of the assets. The assets that are exempt or protected from the used by the court to pay the creditors depend upon the state law and are decided by a person appointed by the court. These exemptions usually include household furnishings, clothing is, tools you need to work, retirement accounts and some or all of the equity in your home.

If you want to keep the property that isn’t exempt under the chapter 7 bankruptcy state laws you can still file for bankruptcy but you will have to choose a chapter 13 bankruptcy. Chapter 13 bankruptcy requires the debtor to come up with a repayment plan that will be approved by court. The debtor will make the payment to court the next 3 to 5 years to pay off his debt at the end of which the bankruptcy be discharged.

New bankruptcy law has brought about certain changes to both chapter 7 and chapter 13 bankruptcy filings. People filing for a chapter 7 bankruptcy now need to undergo a means test. This test is to a certain whether there family income is less than the state mean income of the family of that size in that particular state. If a person fails the means test he cannot file for chapter 7 bankruptcy. Both chapter 7 and chapter 13 bankruptcy require a person to take credit counseling with a minimum of two are financed management course not later than 180 days before filing.

What Is Bankruptcy and What to Expect When Filing

People need to file for bankruptcy when they can no longer afford to pay back the money to their creditors. It is a legal action that declares that you can no longer fulfill your promise to pay back the money that you borrowed. By undergoing the legal proceeding, you are absolving yourself of your debt and after a bankruptcy has been discharged, the lenders loose all legal rights to recover the money from you or file a law suit against you for payment.

However, this does not mean that you will not have to pay back the creditors at all. A debt repayment plan can be a part of a bankruptcy filfing and depending upon your financial situation some of your assets may be absorbed by the court as payment to creditors (Chapter 7) or you may be required to make a repayment plan, if that is possible for you at all (Chapter 13). Read on to learn what to expect when filing for bankruptcy.

If you’re expecting bankruptcy filing to be a magical solution where your debts will immediately go away as easy as swishing a magic wand, then you are probably in for a huge surprise. Filing for bankruptcy involves a lot off paperwork. Bankruptcy laws are complicated and every situation is different from the other. The very first thing that filing for bankruptcy involves is getting good legal advice. Once you have good legal counsel you generally do what they tell you to do. They may ask you to stop making payments on your debts immediately. This makes sense since you’re going to be filing for bankruptcy and try to get the debt charged off anyway. Continuing to make payments on the debts does not make much sense.

Filing for bankruptcy will involve you haven’t take time off from work to go to meetings with your lawyer. In case of a chapter 7 bankruptcy you will need to spend time with the trustee appointed by the court to go over your finances and assets. This will be followed by a meeting with your creditors where a disbursement of the assets is decided upon.

Notifications of the bankruptcy filings also usually appear in the newspaper. However, it is most likely that your friends and family do not go through this section of the newspaper. Unless your friends are also your creditors and receive notices of the bankruptcy in the mail or you are someone very popular your bankruptcy filing will not be very big news. In fact you may just be surprised as to how many people you know who have filed for bankruptcy sometime in the past.

During the time of filing you will need to go to the courtroom. The courtroom is not a pleasant place to be at nor does it have to be a very scary place. The real courtrooms probably won’t look like the ones that you see on TV. It could very well be a regular room with folding chairs. During the time of your filing there may be a lot of people in the room. Most of them will be waiting for the loan turn and are not interested in your case. Your creditors or their representatives may be present but they are not allowed to disrupt the proceedings.

The court proceedings are quiet and orderly. The judge and the trustee may ask some questions and have a look at your paperwork. Your actual time in court may be either very short or may take weeks or months before it’s over.

Once the court has reached decision and your case is resolved you’ll get to find out how you’re supposed to proceed with discharging your debts. If it is a chapter 7 bankruptcy you’ll get to know which one of your assets are to be absorbed by the states to pay of the creditors and which will be exempted. In many cases almost all assets will be exempted from absorption by the state. If it is chapter 13 bankruptcy you will be informed whether the repayment plan you have submitted for discharging debts has been approved or not approved. The creditors will have a right to raise objections to the repayment plan during the proceedings.

Once your bankruptcy has been discharged you’ll be free to start over and rebuild your financial life just like so many have done before you.

Eligibility For Bankruptcy – Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

The Bankruptcy Abuse Prevention And Consumer Protection Act of 2005 (BAPCPA) was introduced in the year 2005 with the intention of bringing about changes in the way consumers could file for bankruptcy. This law made the rules more strict and requirements most stringent for consumers to file for bankruptcy. It also made the proceedings more expensive to complete. Some of the major changes that were brought about by the bankruptcy abuse prevention and consumer action act of 2005 or:

consumers who are required to pass a means test to file chapter 7 bankruptcy which means that they need to prove that their income is not about the state median income for a particular family size. If their income is above the median income then they are not allowed to file for a chapter 7 bankruptcies. This test ensures that the consumer is not abusing the bankruptcy privilege is by trying to avoid paying the debts that he can afford to pay back.

The consumer who fails the means test and hence is determined to be able to pay back his debts must file chapter 13 bankruptcy instead which usually has a repayment plan which lasts for 3 to 5 years.

Receiving consumer credit counseling from a government approved credit counseling agency not later than 180 days before filing for bankruptcy is mandatory for all consumers who are filing.

According to the American Bankruptcy Institute bankruptcy filings dropped significantly following the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. While the total bankruptcy filings in 2005 were 2,078,415, it reduced to 617,660 in the year 2006 which is the reduction of 70%.

This law also resulted in an increase in the number of chapter 13 bankruptcy filings as opposed to chapter 7 bankruptcy filings. One number of chapter 13 bankruptcy filings in 2005 made up around 20% of total bankruptcy filings, in 2006 after the implementation of Bankruptcy Abuse Prevention and Consumer Protection Act the chapter 13 bankruptcy filings constituted more than 40% of the total bankruptcy filings.

Should I File for Bankruptcy?

This is one of the most important questions that you can ask yourself when burdened under unmanageable debt.

Should I File For Bankruptcy?

Filing for bankruptcy is one of the worst entries that can be found on your credit report. It can very ruin your credit score and cripples the potential for borrowing credit in the future. A bankruptcy filing can continue to affect your credit long after it has all of your credit report which will typically take 7 to 10 years since most of the creditors are liable to ask you if you have ever filed for bankruptcy in the past. The law requires every consumer to answer truthfully to the questions of the creditor and failing to do so makes you guilty of fraud which can lead to prosecution. It is always better to pay off your debt and avoid bankruptcy. Filing for bankruptcy can also have an effect on the self-esteem of a person as it may lead to a feeling of being a failure even years after filing.

It is definitely better to avoid bankruptcy if you can. However, under certain circumstances it may be better for you to file for bankruptcy. After all the bankruptcy law does exist for a purpose. If you’re considering whether or not it is the right step for you, here are the few questions that you should consider. You will be better able to decide if you should file for bankruptcy after answering them.

Have you tried negotiating with your creditors?

Before you file for bankruptcy thinking that you do not have enough money to pay off your existing debt you should try and negotiate with your creditor as that can result in the total amount being reduced drastically. Your creditor may be willing to work with you so that he can recover as much of this money as quickly as possible and without going through the lengthy process of the courtroom proceedings.

Have you sought credit counseling?

You should definitely look into credit counseling before considering filing for bankruptcy. A legitimate and accredited credit counseling service can not only present you with a finance plan that helps you come up with extra disposable income but can also negotiate with the creditors on your behalf to lower your monthly payments and the interest rate.

Are your wages getting garnished?

If some of your lenders have already got judgments against you, it is possible that your wages are already being garnished to pay them off. Filing for bankruptcy will stop the wage garnishment leading to more income and may get you some of the garnished money back.

Do you have uninsured medical bills?

Medical bills are one of the top reasons for bankruptcy filings. If you have medical bills that you cannot afford to pay back due to the fact that you do not have insurance for them, or because they are not covered by your health insurance, you can discharge them completely of pay them with a 3-5 year repayment plan when you file for bankruptcy.

Do you have assets?

If you have assets that are secured by a loan such as a house and a car, you may be able to keep these by filing for bankruptcy.

Do you risk getting sued?

If you have been sued in the court by a creditor or have received summons you should not ignore this. You should consult an attorney immediately. Filing for bankruptcy can prevent any one obtaining a judgment against you.

Take the Advice of an Attorney

Always consult a good attorney when considering bankruptcy. There are many different situations that can be dealt in different ways. Bankruptcy filing is also complicated as a lot of paperwork needs to be filed. A good attorney will be able to advice you if bankruptcy is a good option for you and whether it will have the effect that you are hoping it will.

Reasons for Filing a Chapter 13 Bankruptcy Instead of Chapter 7 Bankruptcy

One of the main reasons why you should consider filing a chapter 13 bankruptcy instead of chapter 7 is that under a chapter 7 bankruptcy some of your non-exempt liquid assets can be used and absorbed by the court to repay a part of your debt. If you have secured debts like an automobile loan or a home loan then you may choose to file a chapter 13 bankruptcy so that you can retain these assets. Furthermore, if your family income is above the state median income for your family size, you will not be able to file for a chapter 7 bankruptcy anyway.

According to the U.S. bankruptcy code in order to file chapter 13 bankruptcy, you cannot have more than $922,975 in secured debt and $307,675 in unsecured debt.

In order to decide which bankruptcy to file for and how to go about it is best to consult a competent attorney. Bankruptcy laws are complicated and every situation is different from the other. You should seek the advice of a tax professional or attorney to ensure that your paperwork is filed properly and you have chosen the best option for yourself.