Given the current state of the economy, high unemployment, high student loan debt, and increased medical costs, you may be suffering a financial crisis. You may have even considered filing bankruptcy.
For some people, filing bankruptcy may be the best option. For others, however, filing bankruptcy may not. Before filing bankruptcy it’s important to step back and ask yourself several important questions.
Are there better options to solve my financial crisis than filing bankruptcy?
Filing bankruptcy is a serious decision. Although it may not have the social stigma it once had, it can still have devastating financial ramifications. For instance, a bankruptcy filing will not only remain on your credit report for 7 to 10 years, it will lower your credit score, and it can make it difficult to obtain certain types of loans. Some workers may also find filing bankruptcy can hurt their chances to get certain jobs.
Before filing bankruptcy, it’s important to review your other options. For example, can you meet your financial obligations by getting a second job, cutting expenses, or budgeting? Can you consolidate your debts, borrow money from family members or friends, or use a low interest credit card to meet your immediate needs?
Do not file bankruptcy without first reviewing all of your options.
Can I qualify for Chapter 7 bankruptcy?
Discharging most of your unsecured debts sounds great. Unfortunately, since 2005 and the passage of tougher bankruptcy laws there are many debtors who not be able to file Chapter 7 bankruptcy and have their unsecured debts discharged. Instead, these debtors will have the options of filing Chapter 13 and repaying a percentage of their debts over a 3 or 5 year debt repayment period.
To determine if you qualify for Chapter 7 bankruptcy you will have to compare whether your monthly income is less than the median income for a household of your size in your state. If yes, you can file Chapter 7. If not, you will have to pass a means test which will determine whether you have enough disposable income, after paying your allowable monthly expenses, to pay part of your unsecured debts. If your disposable income is too high, you will fail the means test and will not qualify for Chapter 7 bankruptcy.
Are my debts dischargeable?
Just because you can file Chapter 7 bankruptcy does not mean you should. First, you will need to determine whether your unsecured debts are dischargeable. If you have unsecured debts which cannot be discharged, including spousal income, child support payments, criminal restitution, and certain tax debts, it is likely filing bankruptcy will not help.
If these are the main types of debts you owe, you will need to consider alternate means for repaying your debts. For instance, if you have tax debt you can discuss your options with a tax attorney or the IRS. If you have child support back pay due you can discuss your case with the appropriate state agency (For example, in Texas you can contact the child support division within the Attorney General’s Office). If you have student loan debt you can discuss your options with a bankruptcy lawyer.
Before making any decision as important as filing bankruptcy, you will need to understand all of your financial options.
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