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.
Take a few moments now to complete the form below to locate a qualified bankruptcy
attorney in your area.
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Answers
to Bankruptcy Questions ... The timing, the reasons, and what you need to
know.
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