I have found it helpful to share this checklist with people who call asking me “Should I file bankruptcy?” In a nutshell, if more than two of the following issues apply to you, it is possible that bankruptcy would be an option worth investigating further:
- Debt collectors are calling you at home or at work.
- You are utilizing payday loans to make ends meet.
- Your wages will soon be garnished or are being garnished now.
- Your bank account has been frozen.
- The majority of what you owe is unsecured debt like credit cards, medical bills, payday loans, etc.
- Your facing the threat of foreclose on your home.
- The foreclosure process on your home has already started.
- Your facing possible repossession of your vehicle.
- You have had a vehicle repossessed.
- You want to give up your house or vehicle and walk away without owing any money.
- Your bill payments are more than 30 days behind.
- You have been sued or are being sued over debt.
- You have a significant amount of medical debt that will not be covered by insurance.
- You have medical insurance but can’t afford to pay your share of the bills.
- You owe income taxes that you cannot afford to pay.
- Your total debts (other than house & car) are more than you could pay and still live, even over five or more years
- You have high student loan deb, cannot defer payment any longer, and the notes are more than you can pay
If you have come to the decision that filing bankruptcy is best, the next question is “What type of bankruptcy do I need?” There are four types; the most common that are available to individuals are:
An overview of Chapter 7:
Chapter 7 bankruptcy is called “straight bankruptcy” or “liquidation” and it lasts from 3-5 months, from start to finish. In return for wiping out your debt, a bankruptcy Trustee will sell any unprotected property you own at the time you file bankruptcy. The Trustee uses the proceeds of this sale to pay some money to your creditors. In most cases, you won’t have anything for the Trustee to sell because of state and federal exemption laws that allow you to keep a certain amount of property and necessities. If all your property is exempt, the Trustee will not sell or take any of your property and things. In Chapter 7, it is your choice whether or not you want to keep your house and vehicles or let them go and owe nothing.
An overview of Chapter 13:
In Chapter 13 bankruptcy, you repay all or part of your debt through a 3-5 year repayment plan. The amount that you will repay will vary based on your particular situation, but the point of the payment plan is to allow your payments to be much less than you are currently paying.
This was just a brief overview. I can give you a lot more detail and show you how each type of bankruptcy will affect the specific debts you have and which one would provide you the most benefit. And of course, discuss how to protect your property through the process. Taking the first step to talk to a bankruptcy lawyer early on and getting the information you need to decide what will work for you is the best thing you can do. Every financial situation is different and your lawyer can help you understand all your options.