If you’re in debt and have reached the point where you need to take legal action, there are many things to consider before you start filing. It’s a good idea to consult with a qualified attorney who knows how to assess your case and navigate the waters. Your initial consultation will help you get a grip on the situation and look at it from the legal perspective.
Using the Right Chapter
Chapter 7 means liquidation. All of your appropriate assets will be sold by the courts to pay off outstanding debts. Certain conditions apply for Chapter 7 and a good lawyer will be well versed in all of them. Chapter 13 filing means that the debtor, who must have a regular, stable income source, will create a repayment plan to settle all debts. This is a court-ordered mandate that must be followed or your case could be dismissed. If your income is at a certain level, that is an important factor since people with higher incomes can’t file Chapter 7.
Assessing Your Assets
This is where some people can get into trouble. When filing for bankruptcy, your assets need to be assessed. Those deemed non-exempt will be sold off to pay the debts you owe. Some, in an effort to keep certain items, put the asset in the name of a family member right before filing. This move automatically raises red flags, and if it’s not properly dealt with, it could wind up sinking your case. It’s always good to make sure you’re in good standing in the eyes of the court before filing or all that time and money will be wasted.
Having an “After” Plan
Debt.org finds that nearly 6 to 8 percent of bankruptcies are repeats, and they are responsible for 16 percent of all bankruptcies. One of the reasons is that there was not plan on how you would handle life and debt after going bankrupt. All it takes is an unforeseen emergency to turn into a crisis and you’re back to charging more than you have. Before going through the process, you and your attorney will need to create a financial plan that lessens the likelihood you’ll fall back into old habits and have to go back to court.
Beware of Credit Predators
Bankruptcies make consumers prime targets for credit card companies. They know that consumers need to use debt to help their credit and some card companies use predatory practices like excess fees and high interest rate on those cards. A majority of those offers need to be tossed because they help the company far more than the consumer. To help with creating positive credit, some advisors recommend using secured credit cards since they are restricted and can file good reports to credit agencies.
Bankruptcies live for 10 years on your credit report so there is no such thing as “free and clear.” Despite the promises by some credit repair agencies, they can’t be wiped off before that period is up. You’re going to have to outweigh the bad with the good. To do this keep an eye on your credit report and get rid of unnecessary expenses.