Are you considering bankruptcy? You might be at the end of your rope. Creditors could be calling you constantly. You might have even received a foreclosure notice. Alternatively, you might be looking at what you owe and asking yourself how you could possibly pay it all off in a reasonable amount of time.
No matter your circumstances, it can be difficult to know when it’s time to file. Bankruptcy is a powerful way to end a financial crisis, but it isn’t for everyone. Here are 7 questions to ask yourself before filing.
1. Have I done everything I can to cut expenses?
No one can reasonably pretend that forgoing Starbucks could mean the difference between financial security and insolvency. But there may be significant ways to limit your monthly costs and, as a result, bolster your disposable income.
If your goal is to completely eliminate debt through Chapter 7, keep in mind that you will need to pass a means test. In other words, the court will assess your financial circumstances to determine whether there is a legitimate need for bankruptcy. An experienced attorney can help you assess your eligibility beforehand.
The U.S. Bankruptcy Code is not just reserved for those who cannot make ends meet, but reducing your expenses in big ways (e.g. getting a smaller home, selling a second vehicle, etc.) can help you clearly identify whether bankruptcy is the best possible solution.
2. Can I increase my income?
Increasing your income is easier said than done, but you may have several options at your disposal. You could ask for a raise at work, start a side hustle, obtain a higher paying job, or even ask adult sons or daughters in your household to pay rent. If you are a homeowner, you could rent a room to a tenant. If you believe you are making as much as possible and still can’t repay your debt, it may be time to consider bankruptcy.
3. Could bankruptcy discharge my debt?
Bankruptcy doesn’t eliminate all debt. Generally, it only discharges qualifying unsecured debt, such as utility bills, medical bills, credit card debt, and payday loans. Tax debt and student loans can be difficult to discharge, and child support and alimony are virtually non-dischargeable. Furthermore, bankruptcy could only help you with secured debt (e.g. mortgages and automobile loans) if you are caught up on arrears by the end of the case, or if the court decides to cramdown your loan to the property’s fair market value.
Many factors are at play here, which is why you will greatly benefit from professional counsel. If most of what you owe is non-dischargeable, you may need to explore other options. If only some of what you owe is non-dischargeable, Chapter 13 could be a good fit. If everything you owe is dischargeable and you make less than your state’s median income, Chapter 7 is something to seriously consider. Your attorney can help you understand these options and how bankruptcy laws will affect your unique situation.
4. Will I need to buy a car or house soon?
Bankruptcy remains on your credit report for either 7 or 10 years, depending on whether you file Chapter 13 or 7, respectively. The effect of bankruptcy on your ability to take out new credit and loans diminishes over time, but you may be out of luck if you plan to buy a vehicle or home as soon as the court discharges your debt.
5. Are debt collectors harassing me?
One of the greatest benefits of bankruptcy is the automatic stay, which halts all collection activities. If you believe you may be in danger of foreclosure, repossession, or a lawsuit, you could use bankruptcy to avoid these consequences while you discharge debt after either a liquidation process (Chapter 7) or a 3-5-year repayment plan (Chapter 13).
If you are experiencing creditor harassment, however, bankruptcy is not your only course of action. Creditor harassment refers to certain collection tactics that violate your rights under the Fair Debt Collection Practices Act. If debt collectors have been harassing you, you may be able to take them to court and obtain compensation (with help from an experienced attorney). For some debtors, this compensation covers their debt entirely.
6. How old is my debt?
Each state has a different statute of limitations for debt. In other words, creditors only have a certain number of years to sue you for missed payments. Once these years pass, your debt is considered time-barred, and your creditors no longer have legal recourse.
If your debt is time-barred, bankruptcy might no longer make sense. However, don’t assume your creditors will not sue you just because several years have passed. Take your case to a professional to determine the best course of action.
7. Have I considered all other alternatives?
Bankruptcy is not a last resort. But you may have more options than you believe. A qualified lawyer can help you take full advantage of laws that protect you, helping you determine whether bankruptcy is truly the right path for you.
Let’s Assess Your Financial Crisis Together
Bankruptcy is a serious decision. When filed properly, however, it can give you the clean slate you need to build the future you deserve. Our attorneys at The Buchalter Law Group have what it takes to evaluate your situation and recommend the most effective strategy possible. When your financial future is at stake, turn to our experienced professionals.