Bankruptcy is often portrayed as a bad thing. Actually, it’s your chance to get a fresh start. Your financial troubles may have been caused by an illness or other medical emergency, by the loss of your job, by recession or just bad decisions. However, there is a way for you to take care of the past and look to the future.
If you're considering declaring bankruptcy, here are some questions to ask yourself, and what you should do next.
How do you pay for necessities?
If the only way you can buy groceries or pay your utility bills is to figure out what credit card you can still use, it’s a sign that you are in financial trouble. You should be able to pay for the things that are necessary in your life without charging them. If you are constantly juggling bills to see what you can pay or relying on credit cards when the cash runs out, you need to assess your financial picture.
Is the only payment you make a minimum payment (or less)?
Minimum payments may mean it will take you years and years to pay off a credit card. Look for that information on your credit card bill. If the minimum is the most you can afford, it’s another sign that your debt is out of control.
Have you thought about debt consolidation?
If you have, talk to a financial advisor before you talk to a consolidation company. Debt consolidation may be an answer but it is going to leave a black mark on your credit and may not be enough to straighten out your finances. Remember, it’s a third-party solution and some firms are better than others. Talk to a neutral advisor before you choose this course of action. Bankruptcy may be a better answer,
Do you feel scared and out of control? Do you even know how much you owe?
Does tackling your financial situation seem impossible? Do you put off taking a long, hard look at what you owe because it’s just downright frightening? If you feel like you have nowhere to turn, it might be time to talk to a bankruptcy lawyer. An experienced attorney can help you see what options you have and help you decide if bankruptcy is the right one.
Are you afraid to answer the phone?
If caller ID has become your best friend because it’s the only way to avoid calls from bill collectors and creditors, they’re going to find you anyway. While what a bill collector can do to collect from you may be governed by law, you still may feel threatened. If you’re not sure who to turn to next, it may be time for you to make a call to a bankruptcy lawyer.
If you’ve answered yes to two or more of the above questions, now what?......
What do you own?
Bankruptcy occurs when what you owe is bigger than what you can possibly repay. The only way to know if that’s true for you is to know what you owe. First, know what you have. Account for all your liquid assets. This is not just what money you’re making or have coming in; it includes everything from retirement funds to your vehicles. Stocks, bonds, real estate and non-bank account funds also count. Estimate each item if you don’t know the exact amount and come up with a total figure.
What do you owe?
Just like knowing what assets you have, you need to know what you owe. Add up everything – every credit card balance, all your bills and all your debt. If this sum is bigger than the sum of your assets, it may be time to consider if bankruptcy is an option to you.
Most bankruptcy attorneys will give you a free, first visit. Make that appointment. You may even want to make more than one so you can find an attorney that feels like a good fit.
Chapter 7 and Chapter 13 Bankruptcy
Chapter 7 bankruptcy
This liquidates your assets (some are protected under law) and pays each creditor a portion of those assets. Your debt is cleared and you are ready for a fresh start. A bankruptcy stays on your credit for 10 years, but that doesn’t mean you can’t get credit again or, even, buy a home. It will be harder but it may be possible.
If you have assets you cannot protect in Chapter 7 bankruptcy and that you want to keep, this reorganization bankruptcy gives you 3 to 5 years to pay off your debt. If you have a reliable source of income, it may be your best answer. Chapter 13 means creditors must stop contacting you and when you meet your obligations, any remaining debt may be discharged at the end of the grace period.
Don’t be afraid to talk to a bankruptcy attorney. They can give you the advice you need and help you decide if bankruptcy is the right answer for your financial problems. They will advise you on your options and help you to make wise decisions to get back on a strong financial footing.
DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic.
Published on 20th November 2015
(Last updated 28th March 2018)