Think Declaring Bankruptcy Might Help?

6 factors and a warning to consider before filing for bankruptcy:

I was reading a Legal Journal and found valuable information for anyone considering a bankruptcy as a solution to a tight (or impossible) financial situation…

The following are 6 points that you should know about bankruptcy:

Means Test: The Means Test determines your ability to pay your creditors through a complicated calculation which also accounts for the financial demographics in your area. If you qualify, you can file a Chapter 7 Bankruptcy, which wipes away all of your debts. Otherwise, you are allowed what is called a Chapter 13 Bankruptcy and you will be required to repay many of your debts. Call me if you want to run the numbers.

Credit Counseling: Since 2005, everyone is required to undergo credit counseling before they are eligible to file for bankruptcy. Credit counseling must be provided by an agency approved by the U.S. Trustee’s Office and will determine if you are eligible for bankruptcy or if an informal repayment plan could help avoid filing. This is actually a good option if your financial situation isn’t too far under water.

Affect on Co-Signers: Filing Chapter 7 bankruptcy allows creditors to proceed against any co-signers to your debt. However, filing under Chapter 13 protects co-signers if the debt is from personal purchases, the debt was not incurred in business transactions and if the co-signer doesn’t gain anything from the proceeds of the debt. Again, contact me if you have any questions about bankruptcy in California.

Affect on Your Future: Bankruptcy will likely destroy your credit for at least 7-10 years. This is likely to result in the loss of all credit cards and repossession of non-essential possessions (furniture, TV, etc.) that were purchased on credit. And forget about buying a home during this period.

Some Debts Are Not Forgiven: Student loans, DUI judgments, income taxes less than 3 years past due, fraudulent debts like bad checks, overdue child support, spousal support, or other court ordered debts may not be eliminated in a bankruptcy. If most of your debts are non-dischargeable then filing for bankruptcy won’t reduce your debt burden. In this case you are better off renegotiating payments over a longer period.

Creditor’s Rights: Secured debts holders (debts with collateral, such as a car or house) have the highest priority and will likely reclaim the property if you file for bankruptcy. Unsecured debts, such as credit card debt and most bills are the lowest priority. Such creditors may receive little or no payment in bankruptcy. You don’t get to pick and choose who gets paid, the court decides. So don’t plan on keeping the nice car.

Bankruptcy has a lot of ‘gotchas’ so if you are falling behind in payments, find out now what it’s all about now. Don’t just imagine it as an easy exit that you can glide into when things get really rough.