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When to File Bankruptcy

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How Do I Know When to File Bankruptcy?

For many people, filing for consumer bankruptcy can provide a way to get a fresh start and obtain some relief from debts and other financial burdens. This is because filing for bankruptcy can often wipe a person’s debt out to a certain extent, thus relieving them from having to repay some debts and loans.

Most people file bankruptcy as a last option to help resolve their financial situation. When considering bankruptcy, it helps to keep these ideas in mind:

  • Consider all your options: You may have other financial options, such as refinancing your home or renegotiation loan repayment terms.
  • Make sure you qualify: not everyone can file for bankruptcy (for instance, if you have recently applied for bankruptcy in the past).
  • Consider working with a professional advisor or lawyer, as bankruptcy can be a complex process and a major change in one’s life.

How Do I Know If Bankruptcy Will Help Me?

In general, it is a good idea to evaluate all the options you have prior to filing for bankruptcy. A bankruptcy discharge does not eliminate certain debts and prior obligations, so understand if filing for bankruptcy would be in your best interests. Make sure that the debt that you are concerned with would be discharged in bankruptcy. In addition, many creditors are willing to work with debtors to settle their debts without going through the bankruptcy process.

Also consider whether you can file for Chapter 7 or whether you must file for Chapter 13 bankruptcy. The factors that you should consider include: 

  • Types of debt that you owe
  • Your income and expenses
  • How much property and assets you own

What Are the Advantages of Filing for Bankruptcy?

There are many advantages to filing bankruptcy, such as:

  • Prevents creditors from collecting debt from the borrower during the bankruptcy process.
  • Puts a stop on other proceedings such as a foreclosure or a lawsuit.
  • Discharges certain debts so that the borrower doesn’t have to make payments anymore.
  • Puts a stop to harassing phone calls from creditors
  • Declaring bankruptcy gives you a better chance in rebuilding your credit and have a fresh start to financial security

 In general, bankruptcy may actually provide somewhat of a "breather", financially speaking. This can help a person get back on their feet and begin the process of rebuilding their finances.

Are There Any Drawbacks to Filing Bankruptcy?

Although bankruptcy can discharge a debt of an individual and make their financial situation a little bit more manageable, there are also some drawbacks to filing for bankruptcy including:

  • Does Not Discharge Everything: Bankruptcy doesn’t discharge all forms of debt, such as student loans and other types of loans. Additionally, bankruptcy only discharges personal liability for debts. This means that liens, which attach to your property, cannot be discharged through bankruptcy. However, through the assistance of an attorney, some liens may be avoided during the bankruptcy process by filing motions with the court.
  • Long Process: Depending on the type of bankruptcy, the process can often take a while to complete from start to finish.
  • Applying for Loans: Filing for bankruptcy can affect one’s ability to apply for loans, housing, and other applications.
  • Your Credit Report: A bankruptcy filing will remain on your credit report for 7-10 years. Having a bankruptcy noted on your credit report may make it difficult to take out loans or buy a home. On the other hand, having numerous debts in default will also adversely affect your credit rating. If you are unable to pay your debts, a bankruptcy may enable you to begin rebuilding your credit faster than not filing.
  • You Can Lose Property: When you file for bankruptcy, some of your property may be seized by the bankruptcy court and sold to pay your creditors. However, through the assistance of an attorney, most or all of your property can be protected in bankruptcy through the use of bankruptcy exemptions.
  • Lead to Legal Disputes: Bankruptcy can often lead to other legal disputes, as all kinds of credit reports and other documents will be uncovered during the process. The entire process can involve many different parties and lenders.

Should I Hire a Lawyer for Help with Bankruptcy?

Bankruptcy laws can often be quite complex, and filing for bankruptcy can be a complicated process. You may need to hire a lawyer if you’re considering filing for bankruptcy. Your bankruptcy attorney can advise you one which options are best for you, and can also guide you through the application process. In the event that a legal dispute arises, a qualified lawyer can help defend your interests in a court of law.

Photo of page author Kourosh Akhbari

, LegalMatch Legal Writer

Last Modified: 08-27-2015 10:21 AM PDT

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