When to declare bankruptcy

Being declared bankrupt may be the last thing that you would want. However, it may be better to be in this situation so as to salvage your financial condition. When you find yourself unable to pay off your creditors and when you are barely making enough money to cover monthly expenses, declaring bankruptcy may be the best option. So, when would it be best to throw in the towel?

Indicators that your financial position is at risk

  • You are not really sure of the amount of money that you owe. It is an estimated amount, but not an exact figure.
  • Bill collectors are calling you
  • You rely on the use of credit cards to settle payments for basic necessities
  • The payments that you make on your credit cards are quite minimal
  • You are considering debt consolidation so as to get out of debt
  • You feel anxious and not in control whenever you think about sorting your finances
Filing for bankruptcy

Filing for bankruptcy

The above indicators paint a very tough financial situation. In such cases, all that may be occupying your mind is the huge amounts of debts that you owe and the reality that you may possibly not pay them off anytime soon. When you discover that you owe more than you earn and may afford to pay off the debts, it is an indicator that you should probably file for bankruptcy. Note you should earn an income which is below the level stated by the law so as to qualify for bankruptcy.

However, if you are to consider filing for bankruptcy, do note that not all debts may be discharged. The following debts should be paid even if an individual has been declared bankrupt:

  • Student loans
  • Taxes
  • Criminal restitution and court fines
  • Personal injury caused by driving under the influence of alcohol or drugs
  • Alimony
  • Child support

When you are ready to be declared bankrupt, you should ensure that you will disclose all your assets and liabilities. Failure to do so may mean that some of your debts will still need to be paid off even after being declared bankrupt.

You may declare bankruptcy after ensuring the following areas may not be adversely affected:

Pension plans and insurance policies

Find out if your policies will not be affected by bankruptcy. Some insurance policies and pension plans are protected by state laws and are not affected by bankruptcy proceedings.

Mortgage

You should ensure that you will not risk losing your home. The challenge of paying your mortgage may be made easier if your other debts will be discharged. Filing for Chapter 7 bankruptcy may lead to the loss of your home if a lot of equity is invested in it. It is advisable to file for bankruptcy under Chapter 13 if you have a higher income.

Credit card debts

Credit card debts

Credit card debts

These may not be discharged if you spent beyond your means or if you were not honest in your card application. Although bankruptcy is effective in wiping out such debts, if the mentioned cases apply to you, filing for bankruptcy may not be a good idea.

Declaring bankruptcy is not an easy decision and requires a lot of factors to be considered. However, when you admit that you have a problem with your finances and need a solution, you are on the right track. You then have to weigh in the options that may solve your problem and decide if declaring bankruptcy is the best among them.

How To Declare Bankruptcy

Bankruptcy is the legal status of an individual or an entity, in which they are not able to pay the debts that they owe to creditors. Although bankruptcy is declared by court orders, it is an individual who initiates the process. In the United States, bankruptcy cases are handled by the federal courts. Such cases are guided by the rules under the U.S. Bankruptcy Code. So, how do you declare bankruptcy?

Declare bankruptcy

Declare bankruptcy

As an individual, you qualify to declare bankruptcy under Chapter 7. However, so as to qualify for bankruptcy under Chapter 7, your income should be below a given level. So as to pay off your creditors, your property may be liquidated. If you had borrowed secured loans, the options you will have are to pay the creditor an amount which is equal to the current value of the property, allowing the property which you used to secure the loan to be repossessed or to have the secured debt eliminated.

Steps for Filing Bankruptcy     

               

  • Find out if you qualify

This is the first step that you need to take if you wish to file for bankruptcy. You should qualify for bankruptcy under the conditions stated by law. As earlier stated, your income should be below a given level. Thus, if you still have some income left after paying off your monthly expenses, you will then have to file for bankruptcy under Chapter 13.

  • Fill the bankruptcy forms
Fill the bankruptcy forms

Fill the bankruptcy forms

The bankruptcy forms are downloadable from the U.S Court’s websites. They are a large number of forms, where you are required to fill in your incomes and expenses, properties and debts in full detail. Do note that if you fail to list a debt, it will not be discharged after being declared bankrupt. This means it will continue after bankruptcy.

It is recommended that you fill the forms with the assistance of an attorney. However, should you may decide to fill the bankruptcy forms without the help of an attorney (pro se), the non-attorney prepares may assist you with the paperwork.

  • Receiving a bankruptcy trustee

After filing for bankruptcy, a trustee will work on behalf of you towards your creditors. This trustee is assigned to you by the courts. The trustee determines the property that you get to keep as well as ensuring the verification of the information that you filled out in the bankruptcy forms. The trustee is also tasked with liquidating non-exempt property. However, this is under the guidance of the rules which dictate which property is exempted from liquidation. These rules vary from State to State and thus it will greatly depend on the State you are in.

  • Credit counseling and debtor education

As an individual filing for bankruptcy, you are expected to receive credit counseling as well as debtor education. Before filing for bankruptcy, you are to get credit counseling, whereas after you are declared bankrupt, you should receive debtor education. Before the debts are discharged, you are expected to present the Certificates of Completion to prove that you have undergone credit counseling and debtor education. However, ensure that you undergo these with agencies approved by the Department of Justice.

  • Attend the 341 meeting                                                                                

This is an official meeting that is held with the creditors at your trustee’s offices. Its name refers to section 341 of the Bankruptcy code. You are expected to state why you are filing for bankruptcy and answer questions related to your debts. In this meeting, arrangements related to the property that was secured as collateral as well as selling off your non-exempt property are made.

  • A permanent orderBankruptcy discharge

After this, you may be awarded with a bankruptcy discharge. This is a permanent order that legally makes you to no longer be liable to creditors. Thus, they should not take any legal action against you or communicate to you with regards to the debt. The bankruptcy discharge may be expected to take effect 60 days after you, your trustees and creditors hold the first 341 meeting.