Should You File For Bankruptcy
People’s experiences with bankruptcy can vary widely. Whether or not it’s the right choice for you depends on a number of factors such as the types of debt that you owe and the amounts, your income and financial resources and your ability to survive “life without credit†post the bankruptcy filing.
The majority of people who file fro bankruptcy choose to file Chapter 7. This form of bankruptcy h wipes out all unsecured debts. These are debts that aren’t lined to a specific property such as a car or a house. For example – your mortgage is a secured debt – your credit cards are an unsecured debt.
Filing Chapter 7 bankruptcy is not a free ride by any means. It can mean you have to give up some of your assets (property or cash) to pay your creditors. However the reality is that most people filing Chapter 7 are not required to give up anything, either because they don’t own anything or because the money or property that they do have is exempt or protected by creditors.
What is exempt and what is not varies in the different states and provinces. Most of the time exemptions include things like household furnishings, clothing, tools you need for work, retirement accounts (401ks and RRSPs) and some or all of the equity in your home.
If you want to keep property that isn’t exempt according to bankruptcy laws, then you can file for Chapter 13 bankruptcy. Chapter 13 requires that you come up with a plan to repay all or most of their debts within five years. If you successfully complete your plan you are allowed to keep your property while having any remaining debts removed.
Although a Chapter 13 bankruptcy seems like a good compromise (you get to keep some property and wipe out some debts) is much more difficult to get through. Most people don’t make it all the way through the payment ritual and then their cases are either dismissed which allows creditors to resume their collection activities or the Chapter 13 Bankruptcy is then converted to Chapter 7 type bankruptcy.
A bankruptcy filing only makes sense if any of the following situations apply to you –
• You can’t pay back most or all of your unsecured debts in three to five years.
• You don’t own a vehicle or a home so you don’t have equity that can be seized
• You don’t have much equity in a vehicle or a home (same as the above point)
• You do have considerable inequity in a home vehicle or other valuables that wouldn’t be exempt in bankruptcy. An example is of this type of equity would be jewels, family heirlooms, valuable artwork or collections, stocks, bonds and cash held outside a retirement. This means that a Chapter 13 repayment plan makes more sense for you rather than a Chapter 7 liquidation plant.
Bankruptcy might not make any sense for you if any of the following situations apply ---
• You could pay back your debts within five years
• Most of your debts are the kind that cannot be wiped out. Debts that typically cannot be erased are student loans, child support and recent taxes. You might still decide to file as you can free up more money for these debts but the disadvantage of filing might as well overwhelm the advantages.
• You defrauded your creditors by hiding assets or lying about your income or debts on a credit application.
• You very recently ran up large debts buying luxuries that can be described as vacations and entertainment expenses If you did this while you were broke that constitutes fraud. If you ran up bills and then lost your job you might be able to file for bankruptcy on other debts but not on debts that are considered to be a luxury.
• You want o file liquidation bankruptcy and received a discharge for a previous bankruptcy filing within the last six years.
• You are reluctant to leave a coborrower solely responsible for a debt. A bankruptcy filing can wipe out your legal obligations to repay a loan but creditors can still go after your cosigner.
As you can see the option of bankruptcy is not for everyone. It is always best to consult a bankruptcy trustee or a lawyer to see what the best option is for you.