John E. Pytte June 8, 2016

DebtHow to Decide if Bankruptcy is the Answer

It is never an easy decision to file for bankruptcy, but for those who do decide to employ it, it can be a wise move. However understanding the process of bankruptcy can be just as hard as knowing if and when you need to file for it. Bankruptcy isn’t for everyone. If you’re considering filing, you will need to know the ins and outs of the process, what it means, and how it will affect your future. You also need to know and understand all of your options.

If you’re facing a bankruptcy decision, here is what you need to know:

Chapter 7 Bankruptcy

With Chapter 7 Bankruptcy, you are attempting to have all of your debts eliminated or partially forgiven. In exchange for this debt forgiveness, you will be required to give up property and assets that are then used to pay off portions of the debt. After making an incredibly detailed account of what you own, what you’ve spent, and the debts that you have, a “creditors’ meeting” will be held. At this meeting, your creditors will determine what property will need to be given up and sold.

Chapter 7 is not right for everyone. You are not able to file for Chapter 7 bankruptcy if you have already filed for Chapter 7 or Chapter 13 within the past six years. Having a co-signer on a loan, including a friend or relative, can also prevent you from filing Chapter 7 bankruptcy. You may also not be able to file Chapter 7 bankruptcy if your debt can be shown to arise from vacations, hobbies, entertainment, or fraud.

Chapter 7 also does not allow for debts related to child support, alimony, student loans, income taxes, or court judgments.

Chapter 13 Bankruptcy

Unlike Chapter 7 bankruptcy, Chapter 13 acts as a debt consolidation measure. Chapter 13 will not forgive your debts. Instead, you are given the opportunity to propose a new repayment plan for your debts that creates a more realistic schedule. This means Chapter 13 bankruptcy is a better situation for individuals struggling to pay a mortgage or car loan or who find themselves behind on federal income taxes.

In order to be eligible for Chapter 13 bankruptcy, your secured debts cannot be over $750,000 and your unsecured debts cannot be more than $250,000. Unsecured debts include things like student loans, credit cards, or other standard charges. You must also have regular income as well as disposable income, meaning you have the money and some means to make regular payments on your debt repayment plan.

Other Options

Bankruptcy isn’t always the best option. Sometimes, there are other things you can do to give yourself the extra cash to pay off your debts. Here are some other options that may help you avoid filing for bankruptcy:

Sell Your Belongings : No one really wants to sell their belongings, but if you file for Chapter 7, you will probably need to anyway. Consider the things that you may be able to part with for money. Sell your car for something cheaper, move into a smaller home, or just sell some extra clothes and furniture. Depending on the size of your debt, this could help you remove a sizable percentage of it.

Create and stick to a Strict Budget : Create a strict budget and stick to it at all times- no exceptions. Depending on your situation, there may be the possibility of having someone else control your bank accounts, paying bills and disbursing set amounts to you on a monthly basis. Make sacrifices, like eating out or alcoholic drinks. These things can add up quickly.

Debt Relief Services : With debt relief services, you can get credit counseling and support paying off your loans. While you will want to be aware of potential scams, there are a number of services out there that are truly helpful.

If you’re considering filing for bankruptcy, be sure you understand all your options, including some form of debt relief services. Why? Because getting out of debt can be difficult to do on your own. Get a hand up and your chances of success will increase!