Is Bankruptcy The Answer?

If you have been unemployed for the last several months and struggling to cope up

with the seemingly insurmountable bills, you may want want to contemplate about filing for bankruptcy.

While some creditors are fairly compassionate to people who are undergoing financial hardship, some of then can also be very insensitive especially if there's a very substantial amount involved.

By default, people automatically think of what is referred to as Chapter 7, relief from debt, when the word bankruptcy is mentioned. Other types include Chapter 11 for businesses to undergo reorganization and Chapter 13 for restructuring debt.

In chapter 7 bankruptcy, there is no plan for repayment of debts as in other types. A bankruptcy trustee assesses your property and determines what may be exempt, such as a home, car, or property under a lien for which you wish to reaffirm the debt. Non-exempt assets which include any luxury items bought on credit for the past three months, or extra vehicles for which there is no lien attached, shall be collected and sold in order to pay off part of your debt. The Bankruptcy Code allows debtors to keep certain "exempt" property and to use unclaimed equity in a home to essentially buy down the value of other nonexempt property they wish to retain.

A means test, which scrutinizes your average income over the past six months, is employed to assess if you can qualify for Chapter 7 relief or not. If you fall short of your state's median income, you automatically qualify for Chapter 7 regardless of the amount of your liability. However, those who took some form of credit counseling during the past six months or dropped out of a bankruptcy case voluntarily or were unable to comply with the requirements, will not be able to apply for Chapter 7 relief.

Since bankruptcy is a complicated case which necessitates tons of paperwork, it would be prudent for you to look for an attorney or firm specializing on bankruptcy based locally to work with you regularly online and by phone.

The case will begin with the filing of an official petition, schedules and a statement of financial affairs in bankruptcy court. Once the petition has already been filed, creditors are frozen from collecting your liabilities, either by annexing your property or filing a case against you. Any creditor found violating this hold order, even utility-shutoff, will be charged in contempt of court and ordered to pay you corresponding damages.

Even though bankruptcy seems like a win-win solution when you have creditors on the phone, there is definitely a huge downside to it. There's a very real possibility that you could lose that vacation home or family heirloom as non-exempt assets will be sold to pay off the creditors; it forms part of your credit history for 10 years and will also become part of public domain; and the bankruptcy process itself is very costly with a mixture of court fees, trustee's fees, a financial education course and consumer counseling, not to mention the cost of hiring a lawyer.

If you think chapter 7 bankruptcy may be the solution for you, begin by looking up the means test for bankruptcy in your state and comparing your income to the state's income threshold. If you cannot meet this test, then look for other solutions by contacting creditors or debt counselors. When you're still undecided or believe that is the course for you, set up an initial appointment with an attorney to discuss the process. When all the facts are in, the decision is now entirely up to you.

by: Claire Gallagher.

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