If you are drowning in debt and unable to make your payments, then you've probably considered filing bankruptcy. Declaring bankruptcy can be a smart move, providing you with a fresh start and relief from the debt that is preventing you from moving forward in life.
However, bankruptcy is not a fix-all solution, and it's not the right choice for every individual who is in debt. It's a long, often burdensome process, but it may be the best option in the long run if the following factors apply to you.
Your Creditors Are Not Willing to Work With You
Before you talk to an attorney about filing for bankruptcy, try reaching out to your creditors to see if they're willing to work with you. If you declare bankruptcy, they will probably receive nothing from you - so it is in their best interest to work with you and make it more feasible to pay off your debts.
You may be able to negotiate a lower monthly payment, making it possible for you to continue paying on the debt. The creditor may even be willing to settle on your debt for a lump sum or lower your interest rate. If your creditors do agree to work with you and amend your loan terms, be sure to get confirmation of the deal in writing.
If your creditors are not willing to negotiate with you, or if the terms they offer are not good enough to make your payments affordable, then bankruptcy becomes a better option.
Your Debts Are Able to Be Discharged
Before you let yourself get too set on bankruptcy as a solution, make sure your debts are actually eligible to be discharged. In most cases, only non-secured debts can be discharged in bankruptcy.
You cannot discharge student loans, alimony, or child support payments in bankruptcy, so if most of your debt falls into these categories, your best choice may be to meet with a financial advisor and figure out a more effective way to pay off these debts. You can, however, discharge credit card debt and medical bills in bankruptcy, so if your debt falls into these categories, filing for bankruptcy may be a smart choice.
You Pass the Means Test
The means test is the criteria by which the government determines whether or not you financially qualify to file bankruptcy. The first step in the means test is to compare your income to the median income in your state. If your household income is below the median, you qualify to file chapter 7 bankruptcy.
If your income is above the median, then you will have to go through additional steps to determine if you qualify based on your income and the amount of debt you hold. The paperwork associated with the means test can be complicated, and a bankruptcy attorney can help ensure you fill it out properly.
Keep in mind that even if you fail the means test, you might still be able to file for Chapter 13 bankruptcy. This is different from Chapter 7 bankruptcy, in which your debts are simply discharged. Under a Chapter 13 bankruptcy, you may schedule payments on your debt over a period of several years. This gives you a defined path out of debt, though it does not immediately free you from debt.
You're Willing to Rebuild Your Credit and Start Fresh
If you pass the means test, your debts are able to be discharged, and your creditors won't work with you, then there's one more factor to consider: are you emotionally ready to move forward and start fresh?
Filing bankruptcy will cause your credit score to drop, making it tough to secure loans for several years. Rebuilding from this will require a lot of dedication to better financial practices. You'll want to meet with a financial advisor and proceed very carefully, following their advice. If you're ready to start over, then bankruptcy can be a very effective tool for doing so.
The decision to file for bankruptcy is a big one. Contact Flowers Law Firm to personally discuss your financial situation and whether bankruptcy is the right approach.