Filing personal bankruptcy is not as bad as you think. This is important! If you focus on the bad side of bankruptcy, you will not be able to consider all of the benefits. Bankruptcy is smart and can be strategic. It does not have to be a last resort. Let’s take a look.
The best part of bankruptcy is that you can almost always keep all of your stuff and you don’t have to pay your debt. Bankruptcy is a government program. Just like unemployment or social security or disability, the government will try to help you out if you need it. Bankruptcy is the same thing. The government has a plan to tell the banks to back off so you can continue working and paying taxes. The banks might not like it, but repaying the bank is not as important to the government as paying taxes. Sometimes the little guy gets to win.
Every state has a list of things that creditors cannot take. Check your state’s exemptions here. The bankruptcy court uses this list as the “exemptions” that are used in the bankruptcy court. Exemptions say that anything you need to continue your life, creditors cannot take. You get to keep these things all the way through bankruptcy.
Exemptions will include a certain amount for your home and car. For example, your state exemption might be $6000 for a motor vehicle. That means that you can have a car worth $6000 and you keep it. It could also mean that you have a car worth $16,000 and you still owe $10,000. The exemption covers that $6000 equity in the car. The same calculations can be done for a home. The exemption covers the equity.
The Bad Side of Bankruptcy
Can I file a chapter 7 bankruptcy? Do I qualify for chapter 7?
Not having to repay your debt must have a downside, or everyone would do it. First, you have to qualify. In order to file Chapter 7 bankruptcy, you must make less than the mean income in your state or pass what the bankruptcy code calls a “means test”. If you make less than the mean income in your state, check here , based on your family size, you can file a chapter 7 bankruptcy. If you make more than the mean income in your state, you can still pass the means test and qualify to file a chapter 7.
Can I file a chapter 13 bankruptcy? Do I qualify for chapter 13?
If you cannot qualify for a chapter 7, you may have to make 36 or 60 payments to the court before your debt is discharged. Your payments can be as low as a few dollars, you pay what you can afford. The idea is that you learn to make payments. Either way, chapter 7 or chapter 13, your debt is discharged and you are debt free.
Can I keep my home and car in chapter 13 bankruptcy?
Your home and car are still protected by the exemptions in chapter 13 bankruptcy just like they are in Chapter 7 bankruptcy. The best part is that if you have too much equity in either of them, your payments in the chapter 13 bankruptcy will cover the portion that is not exempt or covered by the bankruptcy exemptions.
Not as much as you think, and it is pretty easy to rebuild your credit. If you have a lot of negative reports on your credit report, a bankruptcy might actually raise your credit score because all of the little reports will now be reporting discharged in bankruptcy. The bankruptcy will count against you, but sometimes not as much as all of the other negative reports.
How long will it take to rebuild my credit after bankruptcy?
Rebuilding your credit is like crops on a farm. You just have to make a plan and wait. The easy way is to get one or more secured credit cards. You can get these right after bankruptcy. You give Discover or a bank a few hundred dollars to hold in case you don’t pay, and they give you a credit card with that same amount as a credit limit. After a few months of paying on time, they will give you an actual credit card. You are on the road to good credit.
It takes three credit lines reporting current for 24 months to qualify for non-government loans. Homes and cars are even easier than that because the debt is secured by the asset. It would take you a lot longer than that to pay the debts. If you file bankruptcy, you don’t have to pay the debts and you still have good credit in a number of months.
Should I file bankruptcy? I never thought I would file bankruptcy.
I hear this from every other client that walks through the door. Filing bankruptcy does not make you a bad person. Even the best, most frugal person can find themselves in circumstances where they need a little help. It’s ok! Bankruptcy is a confusing and emotionally draining process. After the bankruptcy is discharged, most people feel great relief and are glad they did it.
Should I file bankruptcy? I should pay my debt.
This is another favorite of people forced to consider bankruptcy. Yes, in an ideal world you should pay your debt. But keep a few things in mind. The same bank that is chasing you to pay late fees and high interest will not be there for you or your family later in life. You need to take care of yourself and your family. You are just money to them. Don’t shed tears for a business. After you add up all of the interest and fees you have paid, they have made all of their money back and then some. Let’s keep in mind what is important. It is a big cruel world. Sometimes you have to be tough and take care of what matters.
Filing for bankruptcy is not easy. There are a lot of complicated government forms drafted by lawyers who have never dealt with a human. Think filing your taxes times a thousand! There are also a bunch of rules and procedural complications that make the whole process confusing. There are classes to take and filing fees that have to be paid at specific times as well as deadlines for everything. To top it off, there is a trustee who will make you do it again if you mess up or he/she will dismiss your case.
Fortunately, just like doing your taxes, hiring someone to help you is easy and affordable. Hiring an attorney will cost hundreds of dollars, not thousands. A typical attorney should cost $900-$1200 for a standard case and you can make payments. If you are in a hurry, or you have a garnishment or foreclosure, you can make the payments after filing. The whole process should take a few months, and you will be debt free.
Bankruptcy has its downfalls. But It is nowhere near as painful as struggling with massive debt. Don’t find yourself getting older and wishing you had done fun things or taken care of yourself and your family instead of paying a debt. Nobody is going to look out for you in this world except for yourself. Getting help with your debt or with filing bankruptcy is easy and affordable. You need to make the smart choice for you, for your family, for your future. Get free help from a bankruptcy attorney today.