Is bankruptcy right for me?

There are a lot of factors that should be taken into consideration before declaring bankruptcy. Here’s a brief roundup of the pros and cons:

Cons:

  • Bankruptcy should be a last resort. Try other methods first.
  • It can take 6-10 years to rebuild your credit history
  • You might not qualify for credit, or if you do you may have to pay a high interest rate and fees for it
  • Your bank may charge you premiums just to have an account
  • Some job opportunities might be denied
  • You might not be able to discharge as much debt as you’d hoped

Pros:

  • If you are hopelessly in debt this is a way out
  • The minute you file for bankruptcy, an “automatic stay” is in place which means everything freezes. Banks can’t foreclose on houses, your car can’t be repossessed, creditors must stop calling. It gives you at least a few weeks to make a plan for the future.
  • Debts like medical bills, credit cards, personal loans, etc. will be discharged
  • If you plan well, you can retain assets like retirement accounts, tools of the trade, and even your car up to a certain value.
  • At the end of the process, if you follow the rules, you will be rewarded with a discharge of certain debts allowing you to start fresh and rebuild your life.

One of the easiest ways to figure out if bankruptcy is a good idea for you is to look at whether the type of debt that is burdening you is the type that is dischargeable in bankruptcy. If it’s not, then bankruptcy won’t wipe away that debt and you won’t be much better off at the end of the process than when you started.

Here are some common types of debt that are non-dischargeable

  • Credit card purchases of luxury goods or services for $500 or more and made within 90 days of filing bankruptcy
  • Child support or alimony
  • Student loans
  • Fees associated with DUIs
  • Fees associated with crimes against persons
  • Government fines like traffic tickets
  • Unlisted debts
  • Home owners’ association fees

If you are in debt for one of the above reasons, then bankruptcy won’t help you because the debt will not be wiped away by the discharge.

Another quick way to find out if bankruptcy is a good idea is to see if you qualify financially. It is a little complicated to figure out if you qualify, but if you have a modicum of financial acumen you may be able to use these tools to see if you can file for Chapter 7 or 13.

To qualify for Chapter 7, you have to be able to pass the Means Test.

To qualify for Chapter 13:

  • You can’t have more than $360,745 in unsecured debt or $1,081,400 in secured debt
  • Also, you will be required to make payments for either 3 or 5 years.
    • If you make more than the median income in the area, you have to pay for 5 years
    • If you make below the median income, you have to pay for 3 years
  • How much the debtor pays is calculated based on her disposable income (how much the debtor made in the last 6 months – reasonably necessary expenses)
  • http://www.mdbankruptcylaw.com/calculator.asp

Hopefully, this helps you decide whether bankruptcy is a good move for you. If you have questions about whether bankruptcy is a good decision, talk with a bankruptcy attorney and find out how the law will impact the facts of your case.

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