Friday, September 12, 2008

When Should You Consider Bankruptcy?

If you are in midst of a financial crisis, bankruptcy is just one option. There are no set in stone rules when it comes to filing. Everyone's situation is different and must be analyzed on a case-by-case basis. Keep in mind this final action will follow you for at least 10 years and perhaps longer. While it falls off your credit report, many loan applications ask if you've ever filed for bankruptcy. Court records are open to the public and many are easily electronically accessible.

Of course your credit report will reflect your financial actions and as such will affect your ability to get insurance, loans, and perhaps even employment.

If you are questioning the possibility of filing for bankruptcy, there are several things to mull over before making your final decision.

If you have a good job that provides you with a steady income, you are probably not the best candidate. You should seriously consider modifying your lifestyle in order to begin paying back your debts. The judge has the option of dismissing a case if he feels there is adequate income for re-payment, over a specified time period. This is especially true if the majority of debt is credit card related.

The court will review your income, assets, and debts before allowing the action to be finalized. If the judge feels that you could pay off your debts by selling assets or cutting back on expenditures your request may not be granted.

With the recent changes in the law, filing is quite expensive. If your case were to be dismissed, you would be out hundreds of dollars that could have been put toward your debt.

Many credit counselors will tell you that you should other actions first. They recommend selling items such as jewelry, electronics or even antiques and using the profits to pay down your debt.

They also recommend getting a second job, if at all possible. Of course, not everyone's schedule can accommodate this option, but if you have time the additional income will probably go a long way when it comes to paying off your creditors.

Bankruptcy will not allow you to keep assets that have been secured by a loan. The asset, such as a car or furniture, will have to be surrendered to the creditor. Some debt such as back child support and student loans won't be forgiven. You'll still owe them.

Whether or not you file for bankruptcy is the personal decision. Consider your options carefully, before making your final move.

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