How do I know if I should file bankruptcy?
Filing bankruptcy is a big decision, and there are long-term consequences. For instance, filing bankruptcy will substantially lower your credit score, it will remain on your credit report for seven to ten years, and it will make it difficult to acquire credit to make large purchases including buying a home or car. Additionally, Chapter 7 bankruptcy may allow the court to liquidate some of your assets to repay your creditors.
So how do you know when bankruptcy may be your only option? Experts suggest first talking to a bankruptcy lawyer. Most bankruptcy lawyers can assess your finances and should be able to give you a clear idea of your options. If you feel pressured to file bankruptcy or if your lawyer seems to be pushing you into making a decision too fast, talk to another lawyer.
Common questions to assess your financial situation
How do you know if bankruptcy is right for you? One indication may be if the following is true:
- You are continually receiving harassing creditor calls.
- You cannot pay more than the minimum payments on several different credit cards.
- You use credit cards to pay for every day necessities.
- You feel stressed, depressed and out of control.
- You have no idea how much money you owe.
- You have debts which can be discharged or restructured using bankruptcy.
These are just general guidelines, but if you have answered yes to 2 or more of these questions, it may be time to get help.
How do I know if I am bankrupt?
Before you take any action it’s best to take a financial inventory. First, find out how much you owe. Next, take an inventory of your assets, including retirement funds, stocks, bonds, real estate, vehicles, college savings accounts, and other non-bank account funds. If you owe more than you own, you are technically bankrupt, but this does not mean bankruptcy is your only option.
As mentioned above, filing bankruptcy is not the right solution for everyone. First, bankruptcy will not discharge all unsecured debts. For instance, if most of your debts are tax debt, school loans and unpaid child support, bankruptcy may not help you.
What bankruptcy options do I have?
If you have taken the steps above (inventoried assets and debts and talked to a lawyer) and you believe bankruptcy is the right solution, you will have to determine if you are eligible for Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 bankruptcy will allow you to discharge qualifying unsecured debts within 4 to 6 months. Consider, however, not all debtors will qualify for Chapter 7 bankruptcy. To qualify you must meet certain income requirements. If your income is too high or you do not pass the means test, you will have to file Chapter 13 bankruptcy.
Chapter 13 bankruptcy is available to debtors who wish to keep certain assets or who do not qualify for Chapter 7 bankruptcy. Under Chapter 13 bankruptcy you will be required to create a 3 or 5 year repayment plan and repay a portion of your debts.
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