What to Consider Before Filing Bankruptcy

When your circumstances point you in the direction to file bankruptcy, there are various things to consider both before and after your case is filed.  The first thing is to decide which of the 2 types of personal bankruptcy will help you the most.  The more common, Chapter 7 Bankruptcy requires that certain assets which are deemed excessive can be sold and used to pay your creditors. At the end of the process, most of your debt is discharged.  Rather a Chapter 13 Bankruptcy is intended for people with higher income or to stop a foreclosure and involves a debt payment plan based on how much money you have left at the end of each month.  After 3 – 5 years, whatever debt is not paid back is eliminated.

Bankruptcy laws differ in every state, particularly when it comes to Chapter 7.  As such, you may want to talk to a licensed attorney in your state to learn about the specific requirements of each option to determine if you qualify for a Chapter 7 case.

Prior to deciding to file bankruptcy, you should understand that not all of your debts will be eliminated by the court. For example, tax debts that are less than 3 years old, student loans or child support are all non-dischargeable debts.  However, in a Chapter 13 case, you can pay back those debts in full over 5 years without any penalty.

Each State has its own rules on what assets you can keep in bankruptcy and what is subject to liquidation.  For example, you may have to surrender your car or house if it has too equity.  For example, in Massachusetts you can keep your home if its equity is less than $500,000. Other assets such as pension and life insurance may be at risk if your state classifies it as "non-exempt" assets. Although, most states protect these types of assets, consult with a bankruptcy lawyer in your State to be certain.


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