If you have large debts you can’t pay, are behind on your mortgage payments and are in danger of foreclosure, are being harassed by debt collectors, or all of the above, filing for bankruptcy may be the answer. Bankruptcy can, in some cases, reduce or eliminate your debts, save your home, and keep debt collectors at bay, but it also has some consequences, such as long-term damage to your credit score. This, in turn, can hinder your ability to get loans in the future, increase the rates you pay for insurance, and even make it harder to get a job. Therefore, the decision is not easy and it is worth asking how you know if you need to file for bankruptcy. In this post you will find the answer.
Types of bankruptcy that influence how you know if you need to file for bankruptcy
Bankruptcy cases are handled by federal courts, and federal law defines six different types. The two most common types used by individuals are Chapter 7 and Chapter 13, named for the sections of the federal bankruptcy code where they are described. Chapter 11, which often hits the headlines, is primarily for businesses.
Chapter 7 bankruptcy, the type filed by most individuals, is also known as straight bankruptcy or liquidation. A court-appointed trustee can sell some of his assets and use the proceeds to partially pay off his creditors, after which his debts are considered paid off. Some assets may be exempt from liquidation, with certain limits. These include your car, your clothing and household goods, the tools of your trade, pensions, and a portion of the equity in your home. When you file for bankruptcy, you will need to list the assets that you claim are exempt.
Chapter 13 bankruptcy, on the other hand, results in a court-approved plan for you to pay off all or part of your debts over a period of three to five years. Some of your debts may also be forgiven. By not requiring liquidation of your assets, a Chapter 13 bankruptcy may allow you to keep your home, as long as you continue to make the agreed payments. Certain types of debts generally cannot be discharged through bankruptcy. These include child support, alimony, student loans, and some tax liabilities, and should be considered when looking at how to know if you need to file bankruptcy.
The bankruptcy filing process
Before filing for bankruptcy, individuals must complete a credit counseling session and obtain a certificate to file their bankruptcy petition. The counselor should review your personal situation, offer budgeting and debt management advice, and discuss alternatives to bankruptcy.
Filing bankruptcy requires filing a bankruptcy petition and financial statements showing your income, debts, and assets. You will also be required to file a means test form, which determines if your income is low enough for you to file for Chapter 7. If not, you will need to file for Chapter 13 bankruptcy instead. You will also have to pay a filing fee, although it is sometimes waived if you can prove you can’t afford it.
Continuing with how to know if you need to file for bankruptcy, once you have filed for bankruptcy, the bankruptcy trustee assigned to your case will schedule a meeting of creditors. This is an opportunity for the people or companies you owe money to to ask you questions about your financial situation and your plans, if any, to pay them. Your case will be decided by a bankruptcy judge, based on the information you have provided. If the court determines that you have attempted to hide assets or have committed other types of fraud, you may not only lose your case, but also face criminal prosecution. Unless your case is very complex, you usually will not have to appear in court.
After you file bankruptcy, but before your debts are discharged, you’ll need to take a debtor education course, which will give you advice on budgeting and money management. Again, you will need to obtain a certificate to show that you have participated.
Assuming the court decides in your favor, your debts will be discharged, in the case of Chapter 7. In Chapter 13, a repayment plan will be approved. Debt forgiveness means that the creditor can no longer try to collect.
Bankruptcy consequences for how to know if you need to file bankruptcy
Both types of individual bankruptcy have some negative consequences. A Chapter 7 bankruptcy will stay on your credit record for 10 years, while a Chapter 13 bankruptcy will generally stay for seven years. It can also make you appear as a poor risk to companies that request your report, including other lenders, insurance companies, and potential employers. Also note that there are limits to how often you can pay off your debts through bankruptcy. For example, if you have been discharged in Chapter 7 bankruptcy, you must wait eight years before you can discharge it again. All of this should be considered when inquiring about how to know if you need to file for bankruptcy.
Is a lawyer necessary?
Because filing for bankruptcy is complex, and must be done correctly to be successful, it is generally not advisable to attempt it without the help of an experienced bankruptcy attorney. Come to Bankruptcy Now if you are considering bankruptcy as an alternative to solving your financial problems. Michael Brooks is a lawyer with vast experience in the sector and with the best references. He will be able to help you and advise you to make the best decision, and accompany you throughout the process.
Bankruptcy Alternatives
Bankruptcy is sometimes the best way out of a crushing financial burden, but it’s not the only way. There are alternatives that can often reduce your debt obligations without the burdensome consequences of bankruptcy. Negotiating with your creditors, without going to court, can benefit both parties. Rather than risk getting nothing, a creditor may agree to a repayment plan that reduces your debt or spreads your payments over a longer period of time.
If you can’t make your mortgage payments, it’s worth calling your loan servicer to find out what options you have other than filing for bankruptcy. These include forbearance, which will allow you to stop making payments for a set period of time, or an amortization plan designed to spread out smaller monthly payments over a longer period of time. Another option might be a loan modification, which will change the terms of your loan (for example, by lowering the interest rate) permanently, making it easier to repay.
When to File Bankruptcy
Bankruptcy law exists to help people who have taken on an unmanageable amount of debt – often as a result of large medical bills or other unexpected expenses that are not their fault – make a fresh start. But it’s not a simple process and it doesn’t always lead to a happy ending. So before you file bankruptcy, be sure to ask yourself how you know if you need to file bankruptcy. If you decide that bankruptcy is your only viable option – as hundreds of thousands of Americans do each year – remember that the help of an experienced Miami Bankruptcy Attorney like Michael Brooks is your best bet.