Is bankruptcy right for me I ?
Bankruptcy for individuals allows you —some, but not full— protection from your creditors. In other words, the bankruptcy exemptions that it provides, such as homestead, save you money.
But, before you try this legal venue, let's walk you through some important details.
As it stands, you (or your creditors) have to request your bankruptcy from the court. If filed improperly, a judge could simply deny your petition. But, once a bankruptcy petition is filed you get an automatic stay, foreclosure and repossession procedures, as well as creditor calls must stop.
Seeking an attorney's assistance is onerous. The current Bankruptcy Act of 2005 (BAPCPA) is time demanding and holds your attorneys liable for your petition. Prior to filing, you must also complete a briefing at a Consumer Credit Counseling Service (CCCS), where you will also have to take a debtor pre-discharge course after filing.
So, you'll have to ponder whether the value of your assets justify seeking
- an experienced bankruptcy attorney's help, as it does most of the time,
- or the less expensive credit counseling services from the DOJ U.S. Trustee Program list of approved CCCS, exclusively.
But, avoid altogether facing the court on your own, mistakes are costly.
In any case, bankruptcy will not discharge certain debts, such as, child support, alimony, college and real estate, some taxes, criminal fines, and your non exempt secured debt.
But you can still make lemonade out of lemons. A prospective bankruptcy filing gives you powerful negotiating leverage, creditors could lose much with the court's judgment, so it's a good opportunity to negotiate with your creditors —use your unfiled bankruptcy wisely to settle for better terms, which could also deem filing for bankruptcy unnecessary.
If the situation is not so deep, a Chapter 13 (rehabilitation) bankruptcy shies away from eliminating your debts, but seeks to protect you for 3 to 5 years to allow you to arrange new lower monthly payments through consolidating your loans, balance reductions, lower interest rates, and/or seeking extensions to the payment periods.
In a Chapter 7 (liquidation) bankruptcy, a court appointed trustee sells your property that is not protected from bankruptcy exemptions to pay your creditors, in exchange, the court discharges most of your debts.
If you've gotten this far, you realize by now that you must exhaust all venues before filing for bankruptcy, there is little to gain and much to lose, bankruptcy will not only appear in your credit reports for up to 10 years, but afterwards, if asked, you will be legally obligated to disclose that you have filed for bankruptcy, which will continue to hinder your credit as well as your job and business opportunities.
But you can still make lemonade out of lemons. A prospective bankruptcy filing gives you powerful negotiating leverage, creditors could lose much with the court's judgment, so it's a good opportunity to negotiate with your creditors —use your unfiled bankruptcy wisely to settle for better terms, it could also deem filing for bankruptcy unnecessary.
Bottom line: bankruptcy may buy you some time, but you will still need to negotiate with the mortgage servicer to keep your home. Most people who file bankruptcy to save their home from foreclosure wish they had not because in most cases they are in a worse position than when they started. Filing for bankruptcy removes your leverage and places your fate in someone else’s hands. Your best option is to stay in control, and work something out: debt settlements and loan modifications with your lenders prior to filing.
Continue to part II
- How to File for Chapter 7 Bankruptcy
By Elias, Renauer and Leonard.
- Chapter 13 Bankruptcy: Repay Your Debts
By S Elias