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Who is bankruptcy for, exactly? Bankruptcy is for anyone who can't pay back all his or her debts. There are different forms of bankruptcy for different circumstances. Two of the most common are Chapter 7, in which all your debts (except student loans and taxes) are excused, and Chapter 13, in which filing for bankruptcy gives you the opportunity to work out repayment schedules that are fair to you and your creditors, while protecting your assets from being seized by your creditors. As of April 2001, a proposed federal bill would make it much more difficult to file for Chapter 7 bankruptcy, the kind that allows you to entirely eliminate most debts; many more debtors would now have to file for Chapter 13 bankruptcy, where most debts including credit card debts-must be repaid on a schedule worked out by a court. Still, bankruptcy can offer some debtors breathing room and a chance at reestablishing a responsible and less stressful financial life. What is involuntary bankruptcy? Involuntary bankruptcy is a situation in which your creditors, rather than you, file the petition for bankruptcy. I feel terrible about considering bankruptcy, but years of unplanned medical bills have forced me to this point! Terrible things--illness, death, natural disaster, or an unforeseen financial blow-can happen to anyone. Bankruptcy laws take this into consideration--in fact, they exist to help people in situations like these. If you've faced great adversity, you should be permitted to start over again, and declaring bankruptcy can help. I'm deeply in debt, and I'm thinking of filing for bankruptcy. If I do, will the consequences be significant? Filing for bankruptcy has serious, long-term emotional as well as financial consequences. It is not referred to as the "ten-year mistake" for nothing! I want to emphasize that bankruptcy is not to be taken lightly. I consider it an option to be acted upon reluctantly, after much thought, when and only when-there is no other way out. What kinds of questions should I ask myself before filing for bankruptcy? Filing for bankruptcy may help you to resolve your debt problem, but it won't help those to whom you owe money. Imagine how you'd feel if someone who owed you a lot of money sent a letter saying, "Sorry, I'm bankrupt, I won't be paying you back." Ask yourself these questions: To whom do you owe money? Credit card companies? Friends? Businesses? Will you have to see or deal with any of these people or institutions after you file for bankruptcy and, if so, how will that make you feel? What financial hardship, if any, will you cause for others if you take such a step? Is there absolutely no other way for you to climb out of debt, little by little, with work and determination? I'm in debt because of overspending on my credit cards. I really don't owe a lot, but I'm thinking of filing for bankruptcy so I can start over. Is this a good idea? Not under the new laws. Chances are, if your income is high enough, you will be obliged to pay back your credit card debts. Even if the debts will be forgiven, however, you must consider issues that go beyond your immediate financial difficulties. Please remember this: If you do not pay your debts, someone else will have to. In the case of debt to a bank or a credit card company, the institution in question will have to absorb the loss you incur and will probably, in one form or another, pass that loss along to the rest of us. For example, your bankruptcy could affect the scoring system that credit bureaus use, which might mean that someone you don't know will be turned down for credit. Declaring bankruptcy is one of the most important financial steps you will ever consider taking. It will bring a whole new set of complications and difficulties into your already complicated and difficult life. First, think about what declaring bankruptcy will do to your credit report. If you declare bankruptcy, you will find it extremely difficult, if not impossible, to get credit. It will be difficult to rent an apartment, buy a house, or rent a car without a credit card. It is very likely that you will lose property you had counted on keeping for a long time. Future job opportunities may be affected too, which could lead to future financial problems. And in many cases, someone else perhaps a friend, a spouse, or a consigner-will be saddled with your debts. Before filing for bankruptcy please understand the magnitude of what you are about to do. Please understand the sacrifice you are making, as well as what you will gain. Please understand what you are asking of others. Finally, if you decide that this is the only way out, I hope you will start over from a place of pride and courage, not one of shame. Is there a minimum amount of debt you can be in before filing? No, there is not. An attorney I know sees people who file for Chapter 7 and Chapter 13 bankruptcy with debts of as little as $5,000. I wouldn't recommend this, since your debts should be large enough to justify the legal expenses you will incur as well as the long-term consequences of bankruptcy. Should I contact a lawyer before I consider filing for bankruptcy? Definitely. Before you do anything, check with an attorney who can explain the current state of the law, the pros and cons of filing for bankruptcy. |