When Do You File For Bankruptcy?

If you have been out of a job for the last few months and are now faced with a substantial amount of bills that you have no idea how to pay, you may start entertaining the idea of filing for bankruptcy.

While many creditors will work with a person in hardship cases, some will not and at other times the amount involved is so much there is no alternative.

By default, people automatically think of what is referred to as Chapter 7, relief from debt, when the word bankruptcy is mentioned. There are two additional types – chapter 11, which is commonly used by businesses to adjust debts or reorganize, and chapter 13, which is another type of debt restructuring available to sole proprietorship businesses and individuals who do not meet the requirements for chapter 7.

Under Chapter 7 bankruptcy, there is no plan for debt repayment unlike the other types. A bankruptcy trustee assesses your property and determines what may be exempt, such as a home, car, or property under a lien for which you wish to reaffirm the debt. Nonexempt assets, which could include any luxury items purchased on credit in the last 90 days or "spare" vehicles on which there is no lien, may be gathered and sold to pay a portion of the debt. The Bankruptcy Code allows debtors to keep certain "exempt" property and to use unclaimed equity in a home to essentially buy down the value of other nonexempt property they wish to retain.

A means test, which scrutinizes your average income over the past six months, is employed to assess if you can qualify for Chapter 7 relief or not. If you are below your state's median income, then you may qualify for chapter 7 regardless of the amount of your debt. However, those who took some form of credit counseling during the past six months or dropped out of a bankruptcy case voluntarily or were unable to comply with the requirements, will not be able to apply for Chapter 7 relief.

Since bankruptcy is a complicated case which necessitates tons of paperwork, it would be prudent for you to look for an attorney or firm specializing on bankruptcy based locally to work with you regularly online and by phone.

The case begins with an official petition being filed, relevant schedules and a statement of your financial position in bankruptcy court. Once the petition has already been filed, creditors are frozen from collecting your liabilities, either by annexing your property or filing a case against you. Any creditor who violates this stay, even a utility shut-off, can be held in contempt of court and ordered to pay you damages.

Bankruptcy may be a win-win prospect especially when you are talking to creditors on the phone, but there is certainly a huge disadvantage in doing it as well. There's a very real possibility that you could lose that vacation home or family heirloom as non-exempt assets will be sold to pay off the creditors; it forms part of your credit history for 10 years and will also become part of public domain; and the bankruptcy process itself is very costly with a mixture of court fees, trustee's fees, a financial education course and consumer counseling, not to mention the cost of hiring a lawyer.

If you think chapter 7 bankruptcy may be the solution for you, begin by looking up the means test for bankruptcy in your state and comparing your income to the state's income threshold. If you cannot meet this test, then look for other solutions by contacting creditors or debt counselors. If you still can't make up your mind try asking for an appointment with a lawyer immediately in order to discuss the procedure. When all the facts are in, the decision is now entirely up to you.

About the author: NAME is a prolific writer and currently publishes websites about car hire and car rental.

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