Although filing for bankruptcy may seem like a daunting and complicated endeavor, it can provide relief for many as a way to get out of debt. At times it’s a necessary course of action for a fresh financial start.
This isn’t a straightforward undertaking though. It can take months to be finalized and there are long term consequences. For instance, your credit score will be significantly lowered and the bankruptcy information could stay on the record.
When is the right time to file for bankruptcy?
Because the word ‘bankruptcy’ has such an ominous connotation, many people are reluctant to declare bankruptcy. If you answer yes to any of the following questions, it’s time to evaluate your financial situation:
- Are you being sued for outstanding debts?
- Is your home being foreclosed?
- Are you getting calls from bill collectors?
- Are you paying for the necessities with your credit cards?
- Are you making only minimum payments on your credit cards?
- Do you know how much you actually owe?
If the value of your assets is less than the amount of debt you owe, declaring for bankruptcy may be a way to recover your financial equilibrium. Discuss all of this with a bankruptcy lawyer, your partners or coworkers. You need to consider not just your current impediments but also your personal and business future before ultimately arriving at a decision.
Chapter 7 bankruptcy or liquidation bankruptcy will discharge most of your debts, loans and credits. Non-exempt assets need to be sold and you are required to pass a means test in order to become eligible. This means that you cannot file for chapter 7 if your income is higher than the amount the government regulated. Also, there’s a stipulation that you cannot apply for this type of bankruptcy if your previous request was dismissed within the last 180 days. And, lastly, you have to participate in credit counseling with an agency approved by the Trustee’s Office.
Chapter 12 bankruptcy is designed for ‘family farmers’ and ‘family fisherman’ with a regular annual income. The terms of this type of bankruptcy are specifically defined and you must meet the outlined criteria in order to be eligible. Family farmers and fisherman must be engaged in farming or fishing for commercial purposes (which in turn means that the debt must be related to these purposes as well). Also, there’s a limit on the amount of debt that can be dismissed. Annual income encompasses farming that generates seasonal income as well.
It can be costly
By declaring or filing for bankruptcy, you’ll face two expenses: lawyer fees and the court filing fees to handle your case. Regardless of the process’s aftermath, you’ll be required to pay the lawyer fees which can be a fixed amount or a percentage of the debt you owe. The payments of court filing fees won’t be much of burden, since the legal procedure can last up to several months, you will be able to pay them gradually along your path to recovery. Additionally, there are instances when the court will rule to waive this fee depending on the outcome of your bankruptcy.
Filing for bankruptcy may seem like a difficult task to undertake but with careful preparation, a good lawyer and the right information, it could provide you with an opportunity for a fresh start. The biggest lesson one must learn from this process is taking better care of one’s personal finances.