If you’re having trouble keeping up with your debt payments and feel like you are falling further and further behind every month, declaring bankruptcy may seem like a very good idea.
However, although bankruptcy offers a fresh start, it is also a scary possibility. In the media, we are bombarded with stories of seemingly solid businesses going bankrupt. There’s even a possibility that you’re on the verge of collapse. But, how do you know when to file for bankruptcy?
When Should You File For Bankruptcy?
First, think about your financial situation a little more. Collect and add up your bills and credit statements and determine the following:
- The minimum payments you make on credit cards
- How often your bill collectors call you
- Your credit card purchases
Second, do a means test, which is a process a bankruptcy judge takes to determine if you’re eligible to file for bankruptcy. Determine your state’s average income then compare it with your average salary. If you’re earning below the state average, you’re eligible for a Chapter 7 bankruptcy. However, if your salary is above the median, you likely have the means to repay part of your debts.
Lastly, consider other options besides bankruptcy. A debt consolidation loan or a debt management plan might be a better solution than filing for bankruptcy.
How Do You Declare Bankruptcy?
There are two main ways to go bankrupt. The most common route is to file for bankruptcy voluntarily. Another way is for creditors to ask a court to declare you bankrupt.
Each bankruptcy filing method has its pros and cons. Consult a lawyer before proceeding so you can figure out which option is most appropriate for your circumstances.
Option #1: Chapter 7 Bankruptcy
People file for Chapter 7 bankruptcy for a variety of reasons. The most common reasons for filing for bankruptcy are unemployment, large medical bills, overextended credit, and marital problems. With that, Chapter 7 offers a fresh start for many people.
A Chapter 7 bankruptcy is sometimes referred to as a “straight bankruptcy.” Here, you liquidate your assets to pay off your debt as much as possible. Your assets are distributed to creditors like banks and credit card companies.
You will receive a discharge notice within four months. Your bankruptcy will appear on your credit report for 10 years. Even so, all is not lost. Numerous Chapter 7 filers have bought homes with recent bankruptcies on their record.
However, Chapter 7 bankruptcy isn’t fight for everyone. The vast majority of assets are taken and sold to repay creditors. If you own a company, a family home, or any other personal assets you wish to keep, Chapter 7 bankruptcy may not be the best option.
Option #2: Chapter 13 Bankruptcy
Chapter 13 bankruptcy may be the best option if you wish to keep your property.
Also known as reorganization bankruptcy, a Chapter 13 allows you to pay off your debts over a three- to five-year period. It provides a grace period to those with consistent, predictable annual income. Any remaining debts are discharged at the end of the grace period.
Once the court approves the bankruptcy, creditors must stop contacting you. You can then continue to work and pay off your debt over the coming years, and you can still keep your property and possessions.
Admitting you need help getting out of debt or that you can’t do it alone can be difficult. That’s why bankruptcy laws exist to protect not only creditors but also individuals.
By not filing for bankruptcy, you could be doing yourself a disservice. You can get a fresh start by filing bankruptcy with the help of a good lawyer and with the right information. In other words, throwing in the towel may just be the start you need.
Talk To Us Today To Learn More
Thinking of filing for bankruptcy? Trust The Law Office of R. Grace Rodriguez to help you through this challenging decision.
Trust our trustworthy bankruptcy lawyers in Los Angeles to guide you through the process. We will examine your financial situation and ensure you meet the requirements for filing for bankruptcy. When we determine the right path for your situation, we will begin the filing process.
Schedule a consultation with one of our bankruptcy lawyers today. Call us at (818) 734-7223.