Almost one million Americans filed for bankruptcy protection last year. Unfortunately, many of them did so without fully understanding the legal ramifications, what bankruptcy could and could not do for them, and without first determining if bankruptcy was really their best option.
With that in mind, let’s take a look at the top five things debtors should understand about bankruptcy.
- Bankruptcy is not right for everyone.
Before filing bankruptcy, the first thing every debtor should understand is that bankruptcy often is not the best choice to resolve all financial issues. Debtors who only have secured debts, debts which cannot be discharged or minimal debt need to look at different financial options.
For example, if you have a mortgage you cannot pay or debts such as child support or spousal support obligations, filing bankruptcy will not discharge these types of debts.
Additionally, if you have less than $10,000 in unsecured debts the costs and long-term ramifications of filing for bankruptcy protection generally outweighs the benefit of filing. It is probably better to simply tighten your budget and make a payment plan to repay the debt.
- There is more than one type of bankruptcy
Next, before filing for bankruptcy protection, it’s important to understand that there are several different types of bankruptcies which can be filed. The type of bankruptcy a debtor should choose will vary based on their financial situation.
For example, if you have no assets and a limited income you may be able to discharge certain unsecured debts by filing Chapter 7 bankruptcy. Other debtors who have assets they want to protect or a significant income, however, may have to file Chapter 13 bankruptcy and repay a portion of their debts through a 3 or 5 year debt repayment plan.
- Filing bankruptcy can be expensive
One of the most common complaints is that filing bankruptcy is expensive. This can be a significant issue for many filers.
For example, even if you decide to file bankruptcy without legal help you will have to pay over $300 for the filing fee. A Chapter 13 bankruptcy will cost $281. If you decide to hire a lawyer the fees will increase dramatically.
- Debtors will have to disclose a great deal of information.
Filing bankruptcy is a legal process, and the court will need information about your financial status, including your assets, debts, liabilities, income, contracts, and unexpired leases. Any attempt to hide assets or failing to disclose assets is considered fraud and can have serious legal consequences.
- Filing bankruptcy may not eliminate all of your debts.
One of the most sobering realizations for some debtors is that filing bankruptcy may not discharge certain debts. In fact, the debts not discharged under a Chapter 7 or Chapter 13 bankruptcy are often the debts debtors are most concerned with eliminating.
For example, bankruptcy will not discharge alimony, criminal restitution, child support, certain taxes, and criminal fines. Bankruptcy also does not generally discharge student loan debt, although certain exceptions apply.
Filing bankruptcy is not always the best option for regaining your financial footing. Talk to a bankruptcy lawyer about whether bankruptcy can help you.
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