Is Bankruptcy an Option?

We all know about bankruptcy and how damaging it can be to one’s credit history. But after every other recourse has been taken (such as negotiating with your creditors and hiring a debt counselor to help create a repayment plan), if you still find yourself unable to move forward financially, it may be time to consider filing for bankruptcy. You should consult with an attorney before you take such a significant legal step, and you should be aware of major changes to U.S. bankruptcy laws. Here’s a rundown.

Credit counseling required for all filers

One of the requirements of the new bankruptcy law is that anyone who wants to file for bankruptcy must go through credit counseling first. This applies whether you want to file for a Chapter 7 bankruptcy where all of your debts are cancelled through a three-to six-month process, or a Chapter 13 bankruptcy which requires you to repay your debts within five years. Plus, after you file, you’ll need to do more counseling on debt management and budgeting before your debts can be eliminated altogether.

Everyone not eligible for a Chapter 7 bankruptcy

It used to be that if you were filing for bankruptcy, you could choose to file a Chapter 7 or a Chapter 13 which required repayment of your debt. Under the new law, some individuals with higher incomes will no longer have the option of filing a Chapter 7 bankruptcy. To determine if your income is too high, you’ll need to see how your monthly income compares to the median income in your particular state for a household of the same size. If you earn more than the median amount, you’ll need to pass a “means” test to file Chapter 7.

Types of debt bankruptcy does and doesn’t eliminate

While bankruptcy is considered a good solution for eliminating credit card debt, some debts cannot be eliminated either through a Chapter 7 or Chapter 13 bankruptcy. These debts may include child support payments, alimony, student loans, and most tax debts.

Losing your property

Every case is different, but there are circumstances where you may lose your home if you declare bankruptcy under Chapter 7; whereas you may be able to keep your house and pay off any arrears on your mortgage through a Chapter 13. Again, consult with an attorney to understand the possible consequences of bankruptcy before you decide to file.

These are just some of the basics to consider about filing for bankruptcy, but there are many other details to take into consideration. Be sure to research the topic thoroughly and speak to legal counsel before you make a decision to file.