Filing bankruptcy

For many individuals, filing bankruptcy is the only solution to improving their financial situation.

Some people think of bankruptcy as an easy way to offload a crushing debt burden, and it's sometimes the first method they reach for. Well, it may well relieve the burden, but it's far from easy and should be the very last thing you use to do so.

While the law has made it relatively easy to actually file papers, the process - like any legal proceeding - is far from painless.

You will have to justify your filing, exposing all your financial history to a judge and opening it to objections by creditors. If you genuinely owe the money, they're unlikely to settle happily for 10 cents (or less) on the dollar.

There are two types of bankruptcy.

In Chapter 7 bankruptcy, assets are liquidated in order to pay off the debts that are owed. Any remaining debt is then wiped off.

In Chapter 13 bankruptcy, the debts that are owed are restructured to make them more likely to be paid by the borrower. A new payment arrangement is set up to pay off the debt over a specific period of time, usually without the high interest rates.

What To Consider

Before filing bankruptcy, there some very important issues to consider. Even if you're successful, there are multiple short and long-term impacts filing bankruptcy could bring with it. They include:

Strong possibility of loosing your home whether you are renting or on a mortgage or even if you outrightly own your home
Losing any credit cards that have outstanding balances
Others may choose to close your accounts
You'll also find it near impossible to get a home loan or other large credit line (except possibly at the kind of ruinous interest rates that probably led, in part, to your current situation)

Dischargeable Debts On Filing Bankruptcy

Filing bankruptcy unquestionably helps in clearing away non-priority debts. These non- priority debts include:

Credit Card Debts
Unsecured loans
Medical Bills
Legal Fees ... and a few more, depending on State or Country.

Debts Not Dischargeable On Filing Bankruptcy

Not all types of debts are discharged on filing bankruptcy - Whether Chapter 7 or 13 bankruptcy. Back taxes within the past three years and select other debts are generally exempt from bankruptcy protection. Other debts that can not be discharged with bankruptcy includes:

Student loans
Fraudulently aquired loans or credits
Child Support obligation to a spouse
recent income tax
Criminal penalties

That situation will persist for 10 years, during which time you will need to maintain a near perfect credit record in order to work your way back to a useful level of trust. Potential creditors will regard any bankruptcy as the most negative criterion on any credit report - even beyond a low FICO score.

Beyond the credit impact, you may actually be required to forfeit real assets - a boat, expensive jewelry and other items - depending on when they were acquired. Most states make an exception for the primary residence and your auto. If you have secondary property, that may not be protected, however.

Finally, of course, the bankruptcy procedure itself is not free. Courts always have required fees and if you use an attorney that too will cost you. That can add the final straw to an already very bad financial situation.

On the upside, you will obtain relief from debt collection efforts (provided they receive notification). Your wages can not be garnished and any foreclosure action will be stopped. By taking action sooner rather than later, you will start to build a new credit history that can be better than the past one.

Since you won't have access to new credit cards, this can actually be an advantage. There are some people who simply should not have access to easy credit, until and unless they can find a way to change their habits.

It can serve as a huge wakeup call to change any bad money management habits. For some, it's necessary to hit rock bottom before they find the inner strength to make large, positive, long-term changes.

But, hitting rocks is painful. Consider carefully before you take the plunge.

What Happens During Bankruptcy

It is important for anyone considering bankruptcy to fully understand what happens when you file. While you do not have to work with an attorney (you don’t have to have legal representation) it is almost always the recommended method because of a new set of bankruptcy laws that have come into play.

Now, individuals are required to work through Chapter 13 bankruptcy prior to filing Chapter 7 in order to pay back more of what they owe whenever possible.

In addition, there are very strict timeliness in which paperwork and various stages must be met. If you miss deadlines like these, the case is dismissed and you must start from the beginning.

Getting The Process Started

When you are considering filing, it’s important to make for first step be that of contacting legal advice. Your bankruptcy attorney will work with you to help you to get through the process. There are a few differences in filing bankruptcy from States to States .

You will need to review your finances including taking into account all of your assets and all of your expenses. Those that qualify for bankruptcy are those that have more expenses then they do assets and income.

Once this is determined, your attorney will help you to determine if you can file Chapter 7 or if you must go through the process of Chapter 13 first.

Filing bankruptcy takes any place from 60 days to several months, depending on your needs and the type of filing that you will be doing.

During this time, no new credit should be used. You can get help with filing personal bankruptcy from your attorney located locally and through online resources.