No one enjoys going through bankruptcy. It is often the last resort, after months or even years of stressing about the bills, foreclosure, repossession, creditor harassment at home and work, and feelings of despair about your financial health. However, filing bankruptcy can definitely be a way to get a fresh start. To ensure that everything goes smoothly, here are a few questions you should ask when hiring a bankruptcy attorney.
Is Bankruptcy the Best Option for Me?
Everyone has a different situation. The first thing to do is have your new attorney assess the particulars in your case. You should also examine your assets and liabilities, as well as monthly income and expenses. If your income is less than your expenses, bankruptcy may be an option. Keep in mind that some debts cannot be eliminated in a Chapter 7 bankruptcy, such as child support, student loan debt, and some tax bills. If you do not have enough debt, bankruptcy may not be the way to go. Have you exhausted all other means of satisfying your debt, such as trying to negotiate with the creditors?
What Kind of Bankruptcy do I Qualify For?
There are two main types of bankruptcy for individuals and small businesses – Chapter 7 and Chapter 13. There are very succinct differences between the two.
Chapter 7 is also known as a liquidation or straight bankruptcy. This bankruptcy will allow you to wipe off all debts of a certain nature, while still keeping your property such as your home, vehicle, furniture, clothing, retirement plan, and other assets, provided they are under the exemption limits. There are rules as to the amount of equity that is allowed for exemption. You must qualify for Chapter 7 by having an annual household income under a certain amount, which varies depending on the number of dependents and where you live. The bankruptcy period usually lasts only four to six months, at which time your case is over and your debts are discharged.
Chapter 13 bankruptcy lasts from three to five years. This is a debt repayment plan in which you pay a designated amount each month to your creditors. The court will add up all of your eligible debt and pay a percentage every month until your debts are satisfied. Your monthly payment amount depends on several factors, including your income and expense ratio, and the amount of equity you have in assets. Interest charges and late fees are stopped. Garnishments, foreclosures, repossessions, law suits and any other kind of collection efforts must stop. Even interest on unsecured debts must cease. At the end of the repayment period, any remaining unsecured debt is discharged. This type of bankruptcy also allows you to keep your personal assets.
How will the Bankruptcy affect my Future?
According to the Fair Credit Reporting Act, your bankruptcy can be reported by credit agencies for up to ten years. If you are hoping to make a big purchase in the near future such as a car or a home, this may not be the time to file bankruptcy. However, if you are considering bankruptcy, your credit may already be damaged.Â Many creditors actually see you as a better risk after you have wiped off debt in bankruptcy. Some only require the bankruptcy to be discharged for a year before extending you credit.Â There are attorney fees and court costs associated with filing bankruptcy. The best thing to do is to make a list of questions and meet with a competent bankruptcy attorney before deciding whether to file.