Filing for Bankruptcy

Are you considering filing for bankruptcy? If your money troubles have reached crisis proportions, you may feel that bankruptcy is the only solution. The truth is that a bankruptcy doesn’t suit all situations. There are times when you might be better off not filing. The two main kinds of bankruptcy (Chapter 13 and Chapter 7) may not provide the answers you are looking for.

To determine whether filing for bankruptcy is the right choice for you, you need to understand the consequences of each kind of bankruptcy. Filing under Chapter 13 will allow you to keep your property while you repay your creditors – in part or full. These repayments are done over a three to five year period and according to a pre-determined plan.

Filing for bankruptcy under Chapter 13 means repayments are made to a court appointed trustee and you will have to attend a creditor’s meeting. If you have unsecured debt in excess of $269,250 or your secured debts are over $807,750 you will not be allowed to file under Chapter 13. Once the repayment period is over any unpaid debt on dischargeable debts will be wiped out. The plan might be modified or you may be offered a hardship discharge.

A Chapter 7 bankruptcy is a liquidation bankruptcy and you assets will be seized to repay your debt. This includes taxes, creditors, staff wages etc. A Chapter 7 bankruptcy will remain on your credit record for ten years and may hamper your chances of getting credit (or at least low-interest credit) in the future. Filing for bankruptcy can have severe and long-term effects on your ability to get a job, an apartment, a car or an educational loan.

So which should you choose? The key to making a choice about filing for bankruptcy lies in the answers to two questions: 1) Will filing for bankruptcy get rid of enough debt to make it a worthwhile option and 2) Will it mean losing property like your car or house and are you willing to do so?

If you have a friend, family member or spouse who has co-signed on one of your debts when you file, he or she will become liable for that debt under Chapter 7. If filing for bankruptcy will place financial strain on your loved ones, will you be happy with this? Under Chapter 13 they will not be penalized.

So if you do not want to place your loved ones in a position where they are liable for debt you should avoid filing for Chapter 7 bankruptcy. If your Chapter 13 bankruptcy is not likely to clear that much debt you might be better off considering other options to pay your debt down. Filing for bankruptcy should always be your last resort.

Since a bankruptcy will remain on your credit score for six to ten years the amount of money you can save may not be worth the blemish on your financial future. If you know that filing for bankruptcy is not going to solve your money problems effectively and will mean you lose your home or other critical assets you should consider other ways out of financial trouble.