When is Filing Bankruptcy the Best Option?
There are many reasons why people get into debt. While some may feel ashamed that they have found themselves in financial trouble, it’s not uncommon and doesn’t make you a bad person. Sometimes life can throw us curveballs that are difficult to get out of, and we need help.
If you are in financial trouble, bankruptcy could be the best option for you, but how do you know? Start by educating yourself about all the options available to you in resolving your debt. Understanding the basics of bankruptcy will not only help you make an informed decision but, if you decide to move forward, it will help you communicate effectively with your bankruptcy attorney. Since knowledge is power, arm yourself with these facts.
What is Bankruptcy?
While the term bankruptcy often comes with a negative stigma, it can be a great debt relief option for those who have an overwhelming amount of debt. Different types of bankruptcy can resolve a multitude of financial situations. Before you begin research on your bankruptcy options, it’s important to sit down and analyze your financial situation. Make a list of the following items so you can give your bankruptcy attorney a clear snapshot of your financial situation:
- Secured debts - secured debts are debts that are backed by collateral (i.e., car loans, mortgages).
- Unsecured debts - debts that are not associated with property or collateral (i.e., credit cards, student loans).
- Income - understand what is coming in vs. what is going out to help assess the right bankruptcy option.
- Assets - assets must be declared when filing for bankruptcy (i.e., real estate, cash on hand, jewelry).
- Household expenses - listing your living expenses is an essential component in your bankruptcy case and part of the “means test” if you are filing for chapter 7. (i.e., utilities, food, child care).
Having all your financial information pulled together will help you when you have your initial consultation with a bankruptcy attorney. Having good communication with your attorney and being as prepared as possible with all the right information can assist in making your case run that much smoother.
Which Type of Bankruptcy is Right for You?
There are two common types of bankruptcy — Chapter 7 and Chapter 13. While both are designed to relieve debt issues, they each have specific criteria that can help to determine which would be the best debt relief method for you.
Chapter 7 Bankruptcy
Chapter 7, also known as “straight” or “liquidation” bankruptcy may be the best option for those who have a large amount of unsecured debt with limited income.
Unsecured debt may include the following:
- Credit Card Debt
- Medical Bills
- Personal Loans
- Payday Advances
Chapter 7 bankruptcy also requires those who are filing to take an assessment to determine their financial eligibility called the “means test.” The means test is designed to determine if your income is low enough to file for Chapter 7 bankruptcy. If after taking the means test it is decided that you are not eligible, then your attorney can advise you on the other bankruptcy or debt relief alternatives that may be available for your situation.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also known as reorganization bankruptcy, is a good option for anyone who wants to keep certain property. It’s also an alternative for someone who does not meet the financial criteria in filing Chapter 7 bankruptcy. Chapter 13 may be the best option for anyone who:
- Wants to avoid foreclosure.
- Would benefit from a payment plan to repay taxes.
- Wants to reduce their debt into an affordable all-in-one payment.
If you have co-signers on your account, Chapter 13 bankruptcy may protect them as well.
What to Do If Bankruptcy Isn’t Right For You?
Some financial situations are not covered under bankruptcy law. For example, certain money owed to IRS, second mortgages and student loans are typically not dischargeable. However, there are still ways you can get out of you negative financial situation. If bankruptcy isn’t right for you, here are some other options to consider.
Credit Card Debt Settlement
Credit card debt settlement can be right for someone who doesn’t meet the requirements for bankruptcy or has decided that bankruptcy isn’t the best option for their financial situation. A settlement means negotiating with your creditors to repay a portion of the amount owed. Once you have settled and satisfied your debt with your creditor, they can no longer claim you owe them money or come after you in the future. Even though filing bankruptcy is often the best way to resolve the debt, here are some other reasons why credit card debt settlement could be a better option:
- You’ve had a recent bankruptcy filing - There is an important period in which you must wait before filing another bankruptcy case.
- You want to keep a relationship with your creditors - When filing for bankruptcy, you cannot pick and choose which creditors to include, also known as “preferential payment.” You must include all of your creditors. If you want to keep a good relationship with certain creditors but have a few you would prefer to settle with, then credit card debt settlement would be the best option in this case.
Why It’s Important to Have Legal Representation
Filing for bankruptcy on your own can add even more stress to your situation. Just like you go to a doctor when you are sick, a bankruptcy attorney can help you when your financial health is at stake. While there is no legal requirement that you must have an attorney to file a bankruptcy claim, having an experienced bankruptcy attorney on your side can make or break your case. Filing for bankruptcy on your own presents certain risks and choosing the right bankruptcy attorney can make all the difference. A bankruptcy attorney can provide the following:
- Navigate the legal waters - When filing on your own, you are expected to know the rules of the federal court system and understand the U.S. Bankruptcy Codes and Federal Rules of Bankruptcy Procedure. Without extensive time and research, someone who embarks on self-representation will most-likely find themselves overwhelmed.
- Insight - Filing for bankruptcy can involve many options and different strategies. Without experience in bankruptcy law, someone who wants to represent themselves may miss opportunities that would be beneficial to their case.
- Advice - The U.S. Bankruptcy Court strongly recommends someone filing for bankruptcy have legal counsel. Judges and employees of the court are not allowed to give you legal advice by law. An experienced bankruptcy attorney will be able to guide you and give you the information to achieve the best possible outcome in your bankruptcy case.
If you have been considering bankruptcy as a debt relief option, the attorneys at Wadhwani & Shanfeld are here to help you every step of the way. Contact us at (800) 996-9932 for your free initial consultation today.