Should I File
Bankruptcy?
The process of deciding whether to file a
bankruptcy proceeding often is very difficult indeed. Nobody
wants to file bankruptcy, whether it be under Chapter
7 or Chapter 13 of the Bankruptcy
Code. A bankruptcy may have adverse credit effects and there can be
other undesirable ramifications. Well then, why should someone take
this important step? The answer to that question, in my opinion, is
that you should file only after considering the various possible
alternatives. If none of these alternatives is feasible or practical
for you, then filing a bankruptcy petition may be the most
responsible step to take.
Warning Signs. In
assessing whether or not you should seek some kind of debt relief,
consider the following questions:
- Do you ever use one form of credit, such as a
credit card or debt consolidation loan, to make payments on other
debt?
- Have you taken one or more cash advances
greater than $500 in the past few months to pay living expenses?
- Do you ever borrow to meet regular expenses,
such as food and utility bills?
- Can you barely make the minimum required
payment on credit cards or other debts?
- Are you receiving calls or letters from
creditors or collection agencies?
- Are you being sued, or are your creditors
threatening to sue you?
- Are your wages being garnished, or are your
creditors threatening a garnishment?
- Are your financial problems impacting your
health or relationships?
- Do you owe two months salary or more on your
credit cards?
- Are you using one-quarter or more of your
take-home income to pay credit card bills and personal loans
(excluding mortgage payments)?
- Are your revolving credit cards charged to
the limit?
- Have you bounced more than one check in the
past year?
- Are you without cash reserves?
- Are you behind on house or auto payments?
- Are your creditors threatening to take your
car, house, or other property?
- Are you behind on your taxes or do you owe
the IRS?
If you answered 'yes' to one or more of the
preceding questions, you should consider seeking some
form of debt relief. Bankruptcy, of course, offers very effective
debt relief, but there are possible alternatives to filing
bankruptcy, such as consumer credit counseling or negotiating with a
single lender for reduced payments. If you are unsure about
bankruptcy, you should investigate all your options.
Filing Bankruptcy
Of course, often it is not possible to
satisfactorily negotiate a settlement with your creditors. Perhaps
your credit card debt or other unsecured debt is overwhelming, with
no reasonable prospect of ever paying it back. In this situation,
the most responsible step to take for you and your family may be to
obtain a financial "fresh start" through a
Chapter 7 Bankruptcy. Or, if your mortgage company has started a
foreclosure of your home or your vehicle has been seized, the
possibility of working this out with your creditor is very slim. In
this case, you will have to file a Chapter 13
Bankruptcy to save your property.
Should I File Under Chapter 7 or Chapter
13?
You must ultimately decide for yourself whether
filing bankruptcy is the proper action to take, and if so, which
Chapter is better for you. Some of the factors to consider are as
follows:
- If you are not making more money than you
need for your current living expenses (you have no disposable
income), Chapter 13 is not a realistic option.
- Chapter 7 has the advantage of wiping the
slate clean and enabling you to embark on your "fresh start"
immediately. With Chapter 13 you will be making payments for three
to five years.
- If you have a particular asset that you want
to keep and that is valued above the allowable exemption then
Chapter 13 may be the only alternative. For example, if you own a
house with significantly more than $25,000.00 in equity and you
don't want to lose it, Chapter 7 probably will not work.
- If you are trying to ward off a repossession
or a foreclosure, Chapter 7 will not help you, and you will need to
file a Chapter 13.
- If your debts are primarily consumer debts,
and if your budget reveals that after filing bankruptcy your income
substantially exceeds your expenses, it is possible that the United
States Trustee could file a motion to dismiss the Chapter 7 case for
"substantial abuse." In such a case Chapter 13 may be the better
alternative.
Whatever the situation that you are struggling
with, I hope that the information in my website will be helpful to
you. If you wish to discuss your situation with me, I would be
pleased to do so. You may contact me either by telephone or by
e-mail, as follows:
Whatever method you use, your consultation will
be confidential.
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