Things to Know Before Filing for Bankruptcy

Posted on: January 3rd, 2014 by

Bankruptcy is a great way to get a fresh start from financial burdens. But bankruptcy is not always a good idea and based on your circumstances bankruptcy may or may not be the answer to your problems. The American Bankruptcy Institute feels that bankruptcy may be the best option for people who have any of the following.

  • their wages garnished or bank accounts frozen after judgments.
  • most of their debts in unsecured loans (credit card bills or medical bills)
  • debt collection agencies calling at home or work.
  • Have lawsuits filed against them.

The only way to be absolutely sure if bankruptcy is the answer for you is to speak with a bankruptcy lawyer or a lawyer familiar with bankruptcy. Each case with bankruptcy is different and due to laws changing on occasion, this will give you some basic information to keep in mind and information important to know before you file for bankruptcy, but this information could never replace the expertise from a bankruptcy lawyer.

Couple things bankruptcy can do for you:

  • Eliminate the legal obligation to pay most or all of your debts. This is known as a Discharge of Debts.
  • Stop foreclosure of your home and allow you to catch up on missed payments.
  • Stop repossession of a car or other property, or in some cases it can force the creditor to return the property even after it has been repossessed.
  • Stop wage garnishments.
  • Stop debt collection harassment.
  • Restore or prevent termination of utility service for nonpayment of previous bills.
  • Get your driver’s license back if it has been suspended because you didn’t pay court-ordered damages for a driving accident.

Couple things bankruptcy cannot do for you:

  • Eliminate certain rights of secured creditors against secured debts such as car loans or home mortgages.
  • Discharge certain types of debts, such as child support, alimony, or other debts related to divorce, most student loans, court restitution orders, criminal fines and most taxes.
  • Eliminate debts that arise after the bankruptcy has been filed.
  • In most cases remove the responsibility of a co-signer on your loan.

The rapidly declining economy, job losses and rising medical costs pay prompt many people to consider filing for bankruptcy as a way to make a fresh start. Before you consider filing for bankruptcy first you will want to explore possible opportunities to resolve financial problems outside of bankruptcy. For those who have bankruptcy as your last option in relieving your financial stress here are some expert tips to consider and follow when it comes time to file.

Evaluate Your Finances:
Make sure you know what your debts, income and total expenses are. Be sure to look at what causes the financial issues and how it can be corrected moving forward.

Check Your Credit Report:
You will want to get an accurate list of all creditors that you owe. A lot of people make the mistake of assuming that because some debt collectors have ceased communications with you that the debt is no longer a record or that the bank has charged off the debt and it no longer is valid. That is incorrect, if you don’t include ALL creditors on filing for bankruptcy you will run into the risk of going through this process all over again and end up owing a substantial amount of debt.

Inform All Your Creditors and Debt Collectors:
Bankruptcy law requires that all debt collection calls, letters and efforts to contact debtors must cease once a bankruptcy petition has been successfully filed in court. You will also want to make sure if you plan on filing you immediately tell your collector and provide them with the name of the attorney handling the case, and let them know the district you are filing in as well.

Credit Counseling Certificate:
One of requirements of pre-filing for bankruptcy involves obtaining a certificate of successful completion of credit counseling with a government-approved counseling service. Your counseling service can take place up to six months prior to filing for bankruptcy. Not getting this taken care of in a timely manner can cause delays and problems with your bankruptcy so do not wait till the last possible second to get this taken care of.

Get an Attorney:
Due to bankruptcy law becoming so extremely complex it is very important you should not attempt to file by yourself. It’s a very risky process to try and do on your own. Consult with an attorney to make sure things go as smoothly as possible.

You will want to make sure you get an attorney that considers bankruptcy as an alternative solution to your financial problem. That way they can assess what is the best course of action to take and if bankruptcy ends up being the correct course of action you will want to ask about the benefits and the costs of filing for your specific situation.

What types of bankruptcy can you choose?

Chapter 7
This specific bankruptcy is also known as a “fresh start” or “liquidation” bankruptcy. Your debts become discharged but you must give up any nonexempt property to the trustee to pay to your creditors. You can keep secured property if you are current on the payments and continue making the payments regularly.

Chapter 13
This type of bankruptcy is typically called “reorganization, wage earner plan”. Chapter 13 allows you to keep your valuables, such as a car or home, which you might otherwise lose due to past due payments. You can only keep these types of property if you are able to continue to make the necessary payments. Usually that will be the regular monthly payments plus a payment toward the balance due.

Bankruptcy and Your Credit Score
The fact that you filed bankruptcy in the first place isn’t good on your credit. After filing bankruptcy it will be on your credit report for 10 years. However, if you have a ton of debt and are behind on your bills, then your credit probably isn’t very good anyway. Late payments and unpaid debts will stay on your credit for 7 years. Just because you filed bankruptcy doesn’t mean you won’t be able to get credit during the 10 years prior to filing. Many companies will lend to people who have filed, you just typically have to pay a higher interest rate.

Many people view bankruptcy as a way to clean up debt but will red flag you for life if you ever needed to make a purchase on credit or get a loan. All though a bankruptcy will sit on your credit rating for many years it isn’t the end of the world, and in many cases you will be better off filing and being debt free then not filing and destroying what is left of your credit rating in the first place.

About This Author:
By Stephen Cowan, Stephen is a freelance writer and internet marketing guru with a wide range of known topics and expertise in the SEO industry.