Knowing you’re in debt is a serious matter, and if not attended correctly, you can lose your assets and properties and even harassed by creditors. It can cause stress and other psychological problems in the long run.
Some people choose to file for bankruptcy than to pay off their debts because it can eliminate unsecured dues like credit card liabilities. However, experts advise debtors to chose the latter option to avoid more problems in the end.
Bankruptcy is a legal status granted by the court whenever one is unable to pay the debts and owes to creditors. For instance, in America, there are two types of bankruptcy which are the Chapter 7 and Chapter 13. When you declare such, it means that there is no other way for you to pay back your current obligations. Lawyers might be able to help you decide which form of bankruptcy is best for your needs. Check some lawyers here
Meanwhile, the court will reach out to your creditors and create a mechanism together so you can compensate as much debt as possible in the range of around three to perhaps five years, depending on the situation.
The court will also require you to join a counselling program to learn how to prevent the accumulation of debt from happening again; and as long you stick with the payment plan, your creditors will not sue or harass you.
Before doing anything else, think first whether filing for bankruptcy is the best option for you? Here are some of the things to take into consideration:
1. Eligibility In Filing Bankruptcy
There are various requirements to comply before you can file bankruptcy. Here are some of them:
- Your income must neither be too low nor too high
- Taking the means test to know if you can apply for bankruptcy
- You should have zero previously discharged debts. Should you have remaining outstanding debts in bankruptcy, this means you cannot use another one.
- No pending bankruptcy
- If you have filed for bankruptcy in the span of 180 days, then you cannot file another one.
2. Ability to Pay Other Debts
There might be outstanding debts that you owed that you still need to pay even if you file for bankruptcy. These include the following:
- Tax Debts
- Child support
Even though you apply for bankruptcy, there’s the chance that there’s still the need to pay the secured debts above-mentioned.
3. Willingness To Let Someone Invade Your Personal Life
When you file for bankruptcy, the court will invade every aspect of your personal life to investigate your finances. If you try to hide or be dishonest during the process, you can potentially lose the bankruptcy. Worse, your profile will be forwarded to the Federal Bureau of Investigation (FBI), if you are in the USA.
Next, friends and relatives will also know your decision to file bankruptcy. Lastly, according to Chapter 13 bankruptcy, you don’t have the freedom to use the funds you have, and you can only do so when the court gives permission.
4. Potential to Lose Your Home
In case that you cannot pay your debts and mortgage, then, be ready for the possibility that you may lose your house. As such, consider looking for options on where to stay while you are still fixing your issues on debts.
5. Co-Signers Agreement On Getting Your Previous Debt
If you have debts or other forms of expenses that you have co-signed with other people, then you must remember that they will be the one to pay your debts in your stead.
With that in mind, inform those you’ve co-signed that you are applying for bankruptcy.
6. Make Your Pension Plan Safe
Make your pension plan safe and be ready for the possibility that it might also get attached. Although in most cases, companies protect pension plans when you file for bankruptcy.
7. Check If You Can Handle It Even If When Your Assets Are Taken
Even though you have used your assets as a form of collateral for most of your loans, there is still a possibility that creditors may seize them in the nearby future. Be prepared for this probability.
If you want to protect your assets from this eventuality, then, perhaps it’s not yet the time to file for bankruptcy.
8. Payment When Filing For Bankruptcy
In the filing, you may also have to hire a good lawyer and spend for the conversion and filing fees. Prepare perhaps $1,500 to $4,000 cash to process all the documents you need before forwarding in the court.
Overall, bankruptcy may not always be the best option if you cannot pay for outstanding loans and payments. There are many advantages and disadvantages when choosing to file one depending on the case plus variables involved.
Think twice about deciding to file for bankruptcy. If possible, try other options to pay your debts. If you wish to hear legal advice, consult a lawyer who is expert in debts. Having obligations is normal and getting overwhelmed in dues can be stressful.
About the Author
Gail Wilson has more than 12 years of experience under her belt when it comes to business, which she is currently sharing with her clients and peers as part of the law industry. She writes pieces on various law topics that she hopes could help the common reader with their concerns. A family oriented, Gail loves spending time with her husband and two sons during her free time.