Jessica Bennet asked: If you have too much of debt and there’s no income as such to support your debt payments, bankruptcy filing may be the only option for you.
However, you need to get an idea as to what bankruptcy is all about and how it can affect you once you file it. Given below are the 5 things you should surely ask before you file bankruptcy.
1.Find out if you’re eligible to file: If you have more than enough income and asset limit, you may not be allowed to file Chapter 7. In such a case, the court may ask you to file Chapter 13 which is basically a repayment plan developed in order to help you pay off debt within a period of 3-5 years. So, it’s important for you to know under what conditions bankruptcy filings are possible.
2.Know what debts won’t be wiped out: It’s essential to find out those debts which cannot be canceled or wiped out through bankruptcy filing. There are certain debts such as student loans, child support, back taxes, alimony etc which cannot be discharged or wiped out in bankruptcy. So, it’s no use including such debts into your filing.
Credit cards and personal loans are debts, which can be discharged through bankruptcy filings. But if they are fraudulent debts (for example: you have lied on your credit application), then you will not be able to include them in your bankruptcy filing.
3.Effect on your spouse or cosigner: Bankruptcy filing won’t affect your spouse unless his/her name is on the debt account. If you’ve filed Chapter 7, your spouse’s credit will get tarnished along with yours. But Chapter 13 will protect your spouse or cosigner as it is a sort of repayment plan that allows you to reorganize your debts.
4.You may be able to keep your home/car: Chapter 13 bankruptcy filing will help you to keep your home or car as you’re making payments under a court-approved payment plan. But if you file Chapter 7, chances are that you may lose your home or car if your home equity is more than the Federal or State exemptions applicable in your state of residence.
5.Know if your 401k plan and insurance policies are safe: Retirement plans such as 401k, 403b etc and pension are protected under the Federal law. As such, they won’t be affected by bankruptcy filings. However, IRAs and Keogh plans may not be entirely protected, but they do have exemptions (for example: creditors cannot take up to the first $1 million of your funds in an IRA) defined under the bankruptcy laws.
Bankruptcy filings can help you get out of debt or restructure payments depending upon whether you qualify for Chapter 7 or Chapter 13. However, just make sure you’re quite comfortable with disclosing your financial details to your creditors as well as the bankruptcy court.
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