Before deciding to file bankruptcy, you should consider a few other alternatives. Before filing, try other options available to you to pay off your debts. Contact your creditors and try to negotiate for a loan settlement or a repayment plan with lower payments. You can also try to have a short sale of your belongings at this point. Once it gets here however, you should talk to a debt management agency before deciding to file for bankruptcy. However, if these options fall short, it might be time to consider filing for bankruptcy.
The next thing to do is to begin to analyze your debts, as they are not all the same. Certain kinds of debt cannot be discharged, or erased, even if you declare bankruptcy. Categorize all of your debt and calculate how much falls into categories that cannot be discharged. If a lot of your debt falls into the category of being unalterable, filing for bankruptcy may not be you. In order to find this out look and see what your state will let you erase debt-wise- each state has specific provisions for those assets which are exempt from bankruptcy. Be sure to check state law. The following kinds of debt cannot be discharged in a bankruptcy: alimony, child support, debts that arise after the filing for bankruptcy, some debts incurred in the six months prior to filing bankruptcy, loans obtained fraudulently, some student loans, some taxes and more.
You should then learn which assets are exempt from seizure in bankruptcy proceedings. You should know your rights during this process as there are some assets that are unlawful to take- so make sure you study up on what can and can’t be seized. Assets may be completely protected or protected up to a certain value.
Once you have made up your mind, you will need to decide upon which type of bankruptcy is right for you (yes, there are several types!). Here at RLC, we deal primarily with chapters 7,11 and 13.
Individuals and businesses may file for Chapter 7. Property may be liquidated to pay off creditors. Secured debt may be eliminated, or you have the option of allowing the property to be repossessed or paying the creditor a lump sum equal to the current value of the property. Chapter 7 has an income cap.
Regarding Chapter 11, this chapter of the Bankruptcy Code generally provides for reorganization, usually involving a corporation or partnership. A debtor under chapter 11 must propose a plan for repayment. People in business or individuals can also seek relief in chapter 11.
Chapter 13 is also known as “wage earner” bankruptcy. Under Chapter 13, if you have a reliable source of income, you can propose a repayment plan to your creditors that pays them back over the next three to five years. Your debts must meet certain numerical criterion. Note that the amount received by the creditors is established by your income after bankruptcy, not the amount of debt owed.