Answers to Bankruptcy Questions

The timing, the reasons, and what you need to know

You may also be wondering whether you should consider bankruptcy to get your finances under control. You are also very likely stressed and feeling overwhelmed right now, too.

It's ok, take a deep breath and relax, this site offers a series of articles to answer questions on bankruptcy law, the types of bankruptcies you can file, and tips to help you decide if bankruptcy is right for you.

While there are no hard and fast rules on who should file and who shouldn’t, there are some things you should consider before you make that final decision to file.

• You need to know where you stand financially now
• You need to explore what alternatives may work better for you
• You need to know the bankruptcy laws in your State

Where You Stand Financially Now

Make a list of all your Permanent Obligations and categorize them … expenses you will need to pay regardless of your decision … these include housing (including current mortgage, house insurance, utilities, and related expenses), transportation (car payment, maintenance and insurance), taxes, childcare, and other living expenses including food, medical, etc.

Total all obligations to come up with a monthly amount. Be reasonable here, don’t underestimate, or overestimate … look through receipts, checkbook, etc. for the last few months to get a decent idea of what it takes for you and your family to live reasonably.

Make a list of all your unsecured debts, including the principal amount owed, the monthly payment required to payoff each debt within 5 years, and the interest rates.

Create another list of your assets, include your home, car, retirement plan, insurance cash value, jewelry, recreational vehicles, and other assets that could garner some cash if they were sold or cashed in. If there is debt secured against any of these assets, make a note of the principal amount of the debt against the item (do not include the debt in the Debt Listing mentioned in the prior paragraph).

List your income and cash reserves, and include a separate item for "Net Cash Value of Assets to be Liquidated." The Net Cash Value is the current saleable value of the item, minus the payoff of the debt against it … yes, some may turn out to be negative.

Alternatives to Bankruptcy

Now, let’s do a "suppose" budget plan … suppose you quit paying all those unsecured debts, and only pay the Permanent Obligations (which include the secured debt payments) … can you survive? Can you plan to pay the unsecured debt items off over a 5 year period? Or are things still tight? Can you reduce expenses, increase your income, and/or generate cash by selling some assets?

You should talk with a Credit Counseling Service to see what, if anything, they can do for you.

They may be able to give your budget enough breathing room to help you:

• payoff your debt within 5 years;
• keep most, if not all, of your assets; and
• help you learn to budget effectively so you don’t end up in the same mess again in a few years.

Look at debt negotiation / settlement, it’s a viable option but takes the control away from you and gives it to a debt settlement agency and your creditors … including what appears on your credit report for years to come.

Find Out the Law in Your State

Even though the Bankruptcy Code is Federal legislation, States have the ability to modify the code to their requirements. This is why it is so important to know the law in your district or state, to get the answers to bankruptcy questions before you make a final decision.

Find a local attorney well-versed in bankruptcy law in your area and ask if they will provide a free consultation to discuss bankruptcy, exemptions and protected assets as they relate to the current bankruptcy code in your district. You need to know what your rights and responsibilities are as a debtor; and what creditors can and cannot do in your district. Answers to bankruptcy questions you want include:

• What personal property is exempt?
• Are retirement accounts exempt?
• Will you be able to keep your home, car, other larger value assets?
• If there is debt against your home, car, or other larger value assets, how is this affected by the bankruptcy?
• What fee does the attorney charge?
• What is the procedure in your district or state?

When To Make That Decision

You did your "suppose" budget … if you are still tight, and can’t plan to payoff the unsecured debt, then you need to consider bankruptcy. Even if you sold the secured items, there is no guarantee you would get enough to make things better, but you could try and then reassess your financial situation once some of the secured debt is gone.

If you don’t have assets to sell or cash coming in to help with the debt, then you need to consider filing.

Don’t cash in items that are exempt from creditors or bankruptcy in your state, these may include 401K Retirement Plans, IRA’s, and other similar assets. Leave these alone, if you cash them in you risk additional tax implications, plus it would be very hard, near impossible, to build them up again. They are protected, so leave them alone!

The bottom line is … if your "suppose" budget won’t sustain the ability to payoff the debt within 5 years, you need to consider bankruptcy.

If your budget would allow you to live reasonably, and payoff your existing debt, but you need to tighten your financial belt a little, I recommend you do that.

You should contact your creditors directly, or use a credit counseling service , and create a repayment plan you can both live with, then stick to it.

I guarantee this will reduce the stress of worry, plus give you a feeling of satisfaction and accomplishment knowing you have a plan and goals to work toward.

If you just can’t deal with the financial stress, and your budget just won’t stretch, then don’t let fear, shame, or pride stand in your way. Bankruptcy is not debtor’s prison, you can survive, you can come out of it better … bankruptcy can be the light at the end of the tunnel.


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