Filing for bankruptcy is a drastic but occasionally a necessary solution to financial troubles. A lot of people think it’s a “fix all” to their problems, and don’t realize that it may not particularly fix everything.
Here are 5 things that you need to consider before you file for bankruptcy.
1. There are numerous other options before bankruptcy
When you feel like you’re drowning in debt, filing for bankruptcy can feel like the only solution. It also may seem like the fastest solution. However, there are numerous other options that you should consider before you think of filing for bankruptcy. Look at such options as:
- Developing a budget: sometimes you just need to look at how much money you have and where it all goes, on paper, to realize how you can get yourself out of debt.
- Contacting your creditors: If you’re struggling, sometimes simply contacting your creditors and explaining the situation can be the start to solving the problem. Creditors would rather get paid, even if it’s slowly, than potentially get nothing.
- Trying a debt relief service: Debt relief services aren’t for everyone. But if your creditors refuse to work with you, a debt relief service can offer you some credit counseling or debt settlement options.
- Requesting a free consultation with a bankruptcy lawyer: A free consultation can help you determine whether you even qualify to file for bankruptcy, and whether there might be other options you can still try before taking such an extreme step.
2. Two kinds of bankruptcy
Chapter 7 liquidates assets to pay off unsecured debt in a discharge, and you may or may not be employed. Chapter 13 allows you to keep your assets, but commits you to a 3-5 year repayment plan on your debts, which means you must be employed to file Chapter 13. A bankruptcy lawyer can help you determine which one is right for you, if filing for bankruptcy is what you decide to do.
3. Certain kinds of debt cannot be discharged by bankruptcy
Child support, student loans, and most tax-related debt cannot be eliminated with a bankruptcy filing. These debts will still be owed after filing for bankruptcy. This may still help you by eliminating other debts and freeing up more money to pay child support, student loans or tax debts. If those are the debts you’re hoping to get rid of, however, bankruptcy will not help you.
4. Bankruptcy can complicate divorce, and vice versa
If you’re considering both a divorce and filing for bankruptcy, they can complicate each other greatly. The kind of bankruptcy you want to file can determine if you file before or after divorce, and bankruptcy filed before or during a divorce has the potential to slow down the process, as it can affect the property division.
5. There are waiting periods to file for bankruptcy if you’ve filed before
There is no waiting period between multiple files for bankruptcy, unless you are wanting a debt discharge.
For a debt discharge, Chapter 7 requires waiting 8 years before filing again, while Chapter 13 requires waiting 2 years. If you’ve filed Chapter 7 and wish to file Chapter 13, you have to wait 4 years, and for Chapter 13 after filing Chapter 7, it’s 6 years. If you’ve filed bankruptcy within those time frames, you’ll have no choice but to look at other options to resolve your financial troubles.
Bankruptcy is a scorched-earth approach to resolving debt issues. It should be the last resort considered once you feel you’ve exhausted all other options.