Bankruptcy
If you are so deep in debt that you cannot pay it off you may be considering to declare bankruptcy. Since this is a legal matter you will have to consult a Lawyer and involve the courts. Before you do any of that though read everything on this page - it has a lot of useful information.
Bankruptcy is the legal status of a person who cannot pay their debts...
The reason people chose this option is to get relief from debt. If you qualify the courts will give you this relief in one of two ways, either:
- discharging your debts, OR
- restructuring your debts
Let's take a closer look at the bankruptcy process.
Should I file bankruptcy?
Bankruptcy is not for everyone and recent changes to the law sets certain guidelines that you have to meet if you're considering it. If you don't have huge debt that it's almost impossible for you to get out of on your own, then bankruptcy is not for you.
The first thing you need to do before even contacting an Attorney is to get an honest and accurate overview of your current debt and financial situation. Then ask yourself the following questions:
- Have I filed for bankruptcy in the past 8 years?
- Are most of my debts unsecured?
- Do my debts total more than my yearly income?
- Have I made a serious effort to pay off my debts?
- Are most of my debts secured?
Your answers to these questions and more will determine whether bankruptcy is right for you. The most important consideration though is whether you ar so deeply in debt that you cannot pay it off. If that's the case and you can successfully file for bankruptcy you should knw that there are two types.
Which type should you choose?
Most people want all their debts erased or discharged when they file bankruptcy. This is called a Chapter 7 bankruptcy. But partly because of abuse by both the debtor and Attorneys new rules make it more difficult to get this type of relief from your debts. In order to succeed at this the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 now require you to pass what is called a "means test".
The aim of this test is primarily to determine whether you are a good candidate for bankruptcy protection based on your income, amount of debt and overall financial position. If you fail the test your case is either dismissed or converted to the other type of bankruptcy known as a Chapter 13.
Debt is a tool. Jjust like a screwdriver, saw or hammer you can use debt to build things. One of the things you can build with debt is good credit. Another is wealth. But first you nust learn to use debt properly.
A Chapter 13 bankruptcy is similar to a Debt Management plan.
If you meet the other criteria and have mostly secured debt then the courts may put you on a payment plan where a portion of you income goes towards paying off your debts. This plan will continue for 3 to 5 years depending on your income and you make all payments to a Trustee who then pays them over to your creditors.
What should I do next?
Now you know more about bankruptcy than the average person but there is a lot more to it. If you decide to use this method to get out of debt the process starts with a call or visit to a Bankruptcy Attorney.
Before you make that call though you should assess your financial position to see exactly where you stand. Afterall you will have to prove to the Attorney that it is worth his/her while to take your case.
Since bankruptcy should be your absolutely last and final option you should consider one of the other three methods of getting out of debt first.
Bookmark this site and come back often to learn about debt, credit and get ideas on how to build wealth. If you'd like answers to specific questions about bankruptcy, please Contact Us and we will answer your questions for you.
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