What You Need to Know Before Filing For Bankruptcy- Part 1

bankruptcy filing petition and a court gavel
Filing for bankruptcy can be a tricky decision, but it does not have to be scary. It is important to know that you have options, and there are many people available to help you through your bankruptcy case. In addition, you are not alone, as there were an estimated 1,071,932 bankruptcy filings in the U.S. during 2013. Here is our first installment on what to know before filing for bankruptcy.

1. There are two main options, Chapter 7 bankruptcy and Chapter 13 bankruptcy
Once you have chosen to file, then you must decide which path is better for you.

Chapter 7 is liquidation bankruptcy; it will relieve all of your outstanding debt, including personal loans and credit cards. You will have to take a “means” assessment, which will determine if you have enough income. If you do not, you may have to sell any non-liquidated assets. Generally, if you choose to file under this method, then you will be able to keep most assets. The process takes around six months to complete.

Chapter 13 bankruptcy reorganizes your finances, and will require you to pay back your lenders over time. While no property or assets are liquidized, this process can take between three to five years to complete. To be eligible for this method, you must have a stable income and the ability to make monthly payments.

2. Your credit will be affected
Do not expect to file for bankruptcy and get a free pass when it comes to credit. Your credit will be affected, as a Chapter 7 bankruptcy will stay on your credit report for 10 years after it is completed. In addition, you will have to declare your bankruptcy history to any future employers, on medical forms, and on official governmental reports. As it stays on your report permanently, you will want to make sure this is the right option for you before filing.

3. Bankruptcy cannot fix everything
There are certain aspects of credit that cannot be fixed with bankruptcy. This includes back taxes, student loans and child support. If you are struggling to pay these debts, try seeking help from credit counseling, loan refinancing, and/or credit card consolidation.

Stay tuned for Part 2: what you need to know before filing for bankruptcy!