When you’re struggling with significant amounts of debt, filing for bankruptcy can give you the respite needed to regain financial solvency. It is, however, a step that can have a significant impact on your credit rating and, depending on which chapter you file, require you to surrender assets or commit to a long-term debt repayment plan.
Here are 5 questions you should ask yourself before meeting with a bankruptcy attorney. The answers can make it easier to decide on the best resolution for your financial struggles.
- Is filing for bankruptcy the most beneficial option for you?
This is one of the most important questions. When you’re stressed by mounting bills and demanding calls from creditors and debt collectors, bankruptcy may offer a much-needed escape route. While filing has resulted in relief for thousands of Americans, bankruptcy has some cons that should be considered:
- Your filing will appear on your credit report for 10 years
- Bankruptcy becomes part of the public record
- Not all debts are dischargeable (although the amount you repay can be reduced)
Your bankruptcy attorney will help you understand the advantages and disadvantages before you make a decision.
- What chapter should you file?
Chapter 7 and Chapter 13 are the most common bankruptcy chapters for individuals, but they are not created equal.
Chapter 7 is often referred to as a “liquidation” bankruptcy because all nonexempt assets can be taken by the trustee and sold to repay creditors. It’s the most commonly filed chapter because discharge comes in a matter of months instead of years, but to qualify for Chapter 7, the debtor must pass a standard called the means test.
Chapter 13 is called the “wage earners” bankruptcy because it allows debtors with a good job and reliable income to repay some of their debts over a three to five-year period, depending on how much they make per month.
- Can you pass the Chapter 7 means test?
To be allowed to file for Chapter 7, you must pass the means test, which looks at your income and monthly expenses to determine whether you have enough disposable income to repay at least some of your debts. The test compares your income to the state median amount for a household the same size as yours to determine if you can repay some or all of your debts. If you earn more, you will probably have to file Chapter 13 instead.
- Which of your assets are exempt?
Many people shy away from filing for bankruptcy because they mistakenly believe that they will “lose everything.” While assets can be seized if you file Chapter 7, this doesn’t happen very often. Most filers manage to protect their cherished possessions with available state or federal exemptions. Your bankruptcy attorney can provide some necessary guidance in this area. If you do stand to lose more than you feel comfortable with, Chapter 13 will be the better option.
- Can you afford a Chapter 13 repayment plan?
When you file for Chapter 13, you keep your assets in exchange for agreeing to pay some or all of your debts using a court-approved repayment plan. While this is an ideal option for those who have property they don’t want to lose to Chapter 7 liquidation, you need to be confident that you can comply with the repayment arrangement for at least three years.
At the Law Offices of B. David Sisson, we are committed to providing quality and compassionate legal services for consumers and businesses throughout Oklahoma. Attorney Sisson will help you understand that you are not alone and show you the best way to get a new financial start. To schedule a consultation and determine if bankruptcy is right for you, contact us today.