When to File for Bankruptcy

Written by Wiesner & Frackowiak on . Posted in Information

Nobody plans on going into overwhelming debt, but sometimes life doesn’t go as planned. If life events have left you unable to pay your bills, the time has come for you to consider personal bankruptcy.

While many people do not want to face this financial decision, bankruptcy gives you an effective legal option to help you pay off your debts and get your life back on track. Only you can decide if you want to use this option, but if you are in serious financial trouble, bankruptcy could represent the best solution.

A discharge in bankruptcy means you legally don’t have to pay the discharged debt and the creditor cannot try to make you pay. 

In this blog post, we will discuss when you should consider filing for personal bankruptcy, and then we’ll tell you how to begin the process.

Signs You Should Consider Bankruptcy

You’ll find some common signs that you should consider bankruptcy below. Contact a lawyer if you:

  • Face foreclosure and can’t make house payments
  • Have received notice your car will be repossessed
  • Have a court judgment against you
  • Wages are being garnished
  • Have pay-day loans coming due every week
  • Have received notices of unpaid taxes

If any of these signs sound familiar, bankruptcy can relieve your debt and give you a fresh start.

You have two main ways to declare bankruptcy: chapter 7 and chapter 13. Chapter 7 works best for people with low or modest income and you owe medical bills, credit cards, car repossessions, and pay-day loans.

You can use a Chapter 13 repayment plan to reorganize your debts so that you can keep you house and car, pay certain taxes, and past due child support.  Like Chapter 7, you can also discharge debts.

Chapter 7 Bankruptcy

Chapter 7 can be simple and fast.  Persons who file for Chapter 7 generally keep property such as furniture, household goods, clothes, books, jewelry, and retirement accounts.  They also can keep their cars and house if they are not behind on the payments and they stay up to date after the filing.  There is usually one meeting at the courthouse; the hearing usually takes about five minutes.  Most debts are forgiven.  For example, Chapter 7 is ideal to get rid of credit card debt, medical bills, and payday loans.  Some, such as student loans are not.   

However, before you can use chapter 7 bankruptcy to get rid of debt, you have to meet certain eligibility restrictions.

Individuals, married couples, and small businesses may qualify for this kind of bankruptcy if they pass a means test. A means test evaluates how your expenses and income compare to your state’s standards.

If you do qualify for chapter 7, your lawyer will fill out the bankruptcy forms, file them electronically, and appear with you in court (usually one time).  You will get copies of filed documents.  You must provide your attorney with:

  • A list of all your creditors, addresses and amounts owed
  • Paystubs (six months) and tax returns (last two years)
  • Information on all your property (e.g. house, car, retirement plans, and bank accounts)
  • A budget with a thorough list of living expenses

One of the benefits that come from a bankruptcy filing is that creditors and collection agencies will stop calling you.  

Chapter 13 Bankruptcy

To file for chapter 13, you should have steady earnings and disposable income. When saying “disposable income “we mean money you have left after paying for basic necessities like rent, utilities, and food. This type of bankruptcy allows you to keep your home, car, and other belongings while you reorganize your debt into smaller, more manageable payments.

Some persons are not eligible for Chapter 13.  If you owe more than $383,000, you may not qualify to file under this Chapter.  A bankruptcy lawyer will help calculate if you can file Under Chapter 13. 

After you decide on a payment plan, and that plan is approved by the bankruptcy court, you have up to five years to complete your bankruptcy.  Not all debts are discharged.  Like in Chapter 7, some debts won’t be forgiven.  For Chapter 13, the documents and information needed by your attorney are the same as in Chapter 7. 

File on Short Notice

After giving your attorney the information and documents, it will take only two days to get ready.  After you sign the forms, the bankruptcy will be filed, and your creditors will get notified.  Then they must stop calling you.   If they don’t, then the bankruptcy judge can fine them. 

Become Debt-Free

Piles of bills can make you feel trapped by debt. But as outlined above, bankruptcy can provide some much needed financial relief. If you’ve grown tired of struggling with debt, see a bankruptcy lawyer to see which bankruptcy is right for you.