Nobody wants to make the decision of when to file for
bankruptcy, but at some point it may come up. Bankruptcy
has a bad effect on your credit amongst other
Filing bankruptcy should only be a last resort when all
other options have failed you. But when should you consider
filing for bankruptcy?
You find yourself constantly borrowing from one source of
credit to pay off another. You have begun taking cash
advances greater than $500 to pay for living expenses.
You borrow to meet regular expenses like food and utility
bills. You have stopped answering your phone because the
only calls you receive now are from creditors.
Creditors are threatening to sue you, or a suite has
already been started against you. These are signs that you
are indeed in some serious trouble. These are signs that
you may want to consider filing for bankruptcy.
Then it comes to the decision of what sort of bankruptcy
you need to file for. The most common are chapter 7 and
chapter 13. Chapter 7 has the advantage is wiping the slate
clean and setting you on a fresh start immediately. Chapter
13, you will be making payments for three to five years.
But, as stated before, you should only consider filing for
bankruptcy when you have exhausted all other avenues. There
are many various alternatives out there to be considered,
but if none are practical for your situation, then speak
with a professional bankruptcy lawyer to learn what the
next step it.
Bankruptcy is a procedure that is designed to relieve debt
to consumers who have fallen on hard financial times and
cannot afford to pay their existing debts.
While there are many types of bankruptcy out there, the
most commonplace are chapter 7 bankruptcies and chapter 13
bankruptcies of the bankruptcy code.
Chapter 7 is the most common for the individual. It is the
complete erasing of qualifying debt. The debtor is then
released from all repayment obligations. But chapter 7
bankruptcies are not to be taken lightly.
While giving you an immediate fresh start in repairing your
finances, it remains on your credit report for 10 years.
You will be looked at as a high credit risk and financially
Chapter 13 is less harmful to your credit. Though there are
still marks against you, since you will be working to repay
your debts on a payment plan, you do not look like you are
financially irresponsible, though you are still considered
a slight credit risk. Also, your qualifying assets will not
be sold with the chapter 13 bankruptcy like they would in
the chapter 7.
In 2005 an act passed legislation that now makes it more
difficult for individuals to receive a chapter 7
bankruptcies. There are now terms to be followed such as
pre-filing credit counseling and post-filing financial
So when considering your file for bankruptcy, it is
important to weigh the sides between chapter 7 and chapter
13. Which one will do you more harm than good when it comes
to solving your financial problems?
When individuals or businesses cannot meet with their
financial obligations, many make the assumption that the
only solution is bankruptcy. That is not always the case
If the right steps are taken from the beginning, you can
keep yourself and your family out of financial trouble and
away from bankruptcy.
First off, start by educating your children. Many of us
growing up werent presented with the tools and knowledge
to establish and maintain good credit and keep away from
the scare of bankruptcy.
Parents need to be honest with their children about
finances. Teaching children that hard work, no matter the
job, has its rewards and if you spend on a budget, there
will never be a fear of bankruptcy.
Establishing a budget is also key in the prevention of
bankruptcy. You cannot spend what you dont have. Many
people today have multiple credit cards and are in essence
spending money they dont actually have, plus more for
So much so that people are paying off credit cards with
credit cards and causing a terrible chain reaction. Spend
what you can afford, after the bills are paid.
But you will want to make sure you have something socked
away for an emergency. Something along the lines of two
thousand dollars is a good base to have stored away for an
It is another step to take to keep out of financial
trouble. Probably the most important thing though is to
watch your bank account. Dont get yourself into a
situation where you are overdrawn.
The fact is more than a third of adults rely on their banks
overdraft to keep them going on a month-to-month basis.
Such actions are ones that lead individuals on a path to
With the new law passed in 2005 in regards to the filing of
chapter 7 bankruptcy, it became law that anyone filing must
first get pre-bankruptcy debt counseling.
The debtor must get counseling and certification from a
non-profit credit-counseling agency before the forms can be
filed for your bankruptcy.
This usually entails one or more counseling sessions and
when completed, certification so you can proceed with the
There is work you need to do even before you get your
pre-filing credit counseling certification. There are forms
you will need to have filled out during your sessions.
One is the income certification form. This exposes your
income and includes a fee schedule. There is also a budget
form that will need to be filled out. It is pretty
With these forms complete, and your certification now
complete, you will need the non-profit credit counselor to
fill out your affidavit and agreement for credit
counseling. Your attorney, along with a copy of your state
ID, must also notarize this form.
All of these forms must be presented to the court clerk
before you begin to file your bankruptcy paperwork along
with a notable fee.
Many companies offer this service not only in their office,
but also online with one-on-one telephone counseling
sessions. Once you have completed these steps, you are
ready to file the paperwork with your bankruptcy court.
Be prepared though because following the court process,
there will be another counseling session you must attend.
This time it is a financial planning session, which will
help you get back on track to a financially better future.
People considering bankruptcy have many questions regarding
how future credit will be affected. Some think that it will
be 10 years before they can get credit again, or that they
will never get a credit card after their bankruptcy.
Common questions debtors have are usually about keeping
current credit cards, establishing new credit and buying a
If money is owed on a current credit card, then it must be
listed in your bankruptcy forms as a debt. These forms are
filed under penalty of perjury and if fraud is detected,
your bankruptcy case can be discharged.
Also perjury is a federal crime punishable by a fine and
time in prison. Neither circumstance is ideal for someone
trying to repair his or her credit. But if nothing is owed
on the card, then it does not have to be listed.
But this doesnt necessarily mean you will get to keep your
card. Your company may cancel your account as a
Credit is now available to the recently bankrupt. Though
most will find high restrictions such as lower limits and
higher interest rates.
But it is not necessarily a good idea to start up right
away with those credit cards. Usually it is what gets
people into trouble in the first place. It is also
important to avoid credit repair scams.
After filing for bankruptcy, many people are afraid they
wont be able to buy a home for 10 years while they have a
history of bankruptcy on their credit report.
Usually 18-24 months within a bankruptcy discharge, debtors
can qualify for a loan on the same terms as if they had not
filed for bankruptcy.
While filing for bankruptcy, there are several codes, which
an individual can file under. One such chapter is 13, which
allows the debtor to keep property and pay the debt off
The debt is usually paid over a three to five year period.
This chapter is usually chosen by those who have a regular
income and who do not wish to deal with the new laws of
chapter 7 bankruptcy codes.
Also known as the wage earners plan, chapter 13
bankruptcies enable debtors to pay off part of the debt
they have incurred.
While it is not as good as being able to work something out
with your creditors and arrange payments individually or
through a debt consolidator, it does show some financial
responsibility and the debtors willingness to make up for
Chapter 13 bankruptcies act as sort of a consolidation loan
in itself. Because the debtor is making payments on the
owed monies, it does not have such a bad impact on the
credit reports. But the individual does not have direct
contact with the creditors and payments are distributed
To be eligible for the Chapter 13 bankruptcy an individual,
even if self-employed must have an unsecured debt of under
$307,675 and secured debts must be under $922,975.
No debtor may file for chapter 13, or any bankruptcy
chapter during the preceding 180 days of a previous
bankruptcy petition was dismisses.
There are fees that must be paid also when filing for
bankruptcy, even the chapter 13 code. The courts charge a
$235 case filing fee and a $39 miscellaneous administrative
fee. These fees must be paid when filing unless with the
courts permission, it can be paid in installments.
With so many people in society today finding themselves in
financial trouble more often, the rate of bankruptcy has
been on the rise.
The main purpose of bankruptcy is to give honest debtors a
fresh start, clearing most debts and discharging debtors
from legal obligations and providing the courts with
non-exempt assets to be distributed among the creditors.
Originally a bankruptcy case is started with the filing of
a petition. This petition declares the debtors financial
information and states his intent to declare bankruptcy.
Most individuals, who file for bankruptcy, file a chapter
7. This is a liquidation bankruptcy. This is where the
debtors non-exempt assets are sold off and distributed on
the basis or priority amongst the creditors.
Bankruptcy shouldnt be the first step though. Many people
who find themselves in trouble immediately go to
First talk with your creditors and try to work something
out. They would rather take payments than deal with the
paperwork and money that goes into legal action that they
will need to take.
Next, speak with a non-profit debt consolidator. Many
people who think they are deep in trouble are only
borderline, and with some help and creative financial
dealings, debts can be paid off without the initiating of a
When all else fails, a bankruptcy lawyer should be sought.
They are experts in the steps that need to be taken from
filing the paperwork to the court hearing to determine if
the bankruptcy filing is legit. False filing for bankruptcy
is a crime and punishable in court.
In 2005 the U.S. was implemented with new bankruptcy laws
that passed congress. Before that time, filing for chapter
7 bankruptcies was an easy way out of financial
Many people spent years being careless with their credit
and debts because it could be fixed with a quick filing for
Now that the law has changed, there are more restrictions
for filing a chapter 7. Before the 2005 revision, filers
could choose which code they wanted to file under. Income
did not matter.
One of the biggest changes is that now those with a higher
income will have to file under chapter 13 and therefore pay
off some of their incurred debt. The law also imposed new
restrictions on bankruptcy lawyers. It may be tougher now
to find a lawyer who will represent you in a bankruptcy
In addition to the new income restrictions, there is also
mandatory counseling that debtors must complete before and
after filing for chapter 7 bankruptcy.
Pre-filing, individuals must complete credit counseling and
post-filing, they must complete financial budgeting. These
should have been implemented years before. They are
designed to keep people aware of their spending and keep
them on track.
There is also a change for chapter 13 filers. There is also
a new income demand. All disposable income left after
paying actual living expenses must now go into their
The IRS now determines the allowed actual living expenses,
not the actual living expenses, if their income is higher
than the median income in their state.
If you are planning to file for bankruptcy then you will
indeed be making a trip to court. The U.S. Bankruptcy court
is a federal court and deals with all aspects of bankruptcy
law. Each of the 94 judicial districts handles bankruptcy
Each bankruptcy court houses a bankruptcy judge who is
appointed to 14 years by the U.S. court of appeals. Though
rare on occasion, regular district courts can hear and try
bankruptcy cases on the courts discression.
Your first visit to court will most likely be brief. You
will not be seeing a judge on your first visit, but instead
a trustee of the court who will ask you questions regarding
you financial status and history.
Questions will fall along the lines of where you live, what
property you own, list of assets and liabilities and if you
have any pending lawsuits against another person.
You will also be asked if you expect to inherit cash from a
relative or other source. No creditors will be in
attendance during your chapter 7 hearing and your lawyer
will be with you the whole time.
For Chapter 13 hearings it will be the same basically. You
will endure the same questioning in addition to questions
regarding your repayment plans.
After sixty to ninety days you will be returning to court
to finish the discharge order. It is very important though
that you show up and are on time.
The court may see you in contempt and discharge your
bankruptcy case unless your attorney successfully files a
continuance. Then you will most likely have to pay your
attorney an extra filing fee on top of everything else.
When youre in a financial bind, bankruptcy is not the only
way out. There are many alternatives to bankruptcy if you
are willing to put out the time and energy. It could save
you much unnecessary hassle.
Bankruptcy is a difficult decision to make so it is best if
there is another solution out there for you.
Begin by calling your creditors. Most are willing to work
with you if you explain to them your situation. Tell them
you are considering bankruptcy.
In many cases, creditors are willing to work out a
different payment plan with you. Dont hide from them
either. Be straightforward and open about your financial
Before filing bankruptcy, take a good long hard look at
your finances. Get organized and begin writing out a
budget. Start with your monthly income and deduct your
monthly household expenses.
Understand how you are spending your money and seek out
where you can make cutbacks. Perhaps buying groceries in
bulk, or cutting back on phone services or cable services.
Every little thing helps.
Next you will want to take a look at your credit cards. You
may be able to take the balance from one with a higher
interest to a lower interest one. Then get rid of those
high interest credit cards all together.
Stay away from paying off credit cards with credit cards.
Other things you can try are refinancing a car loan or a
mortgage. Or perhaps you have some family members or
friends who are willing to pitch in to help pay off high
rate debts and avoid bankruptcy.
But remember, this is a loan so when you are in a better
situation, do make sure to pay back those who were kind
enough to help you out.