It’s often depressing to look at your finances, see you’re in debt over your head, and admit you have to file bankruptcy. While in many cases alternatives to bankruptcy do exist, whether it’s Chapter 7 or Chapter 13 personal bankruptcy, it’s often clear filing bankruptcy is your best option. Does that mean your house will go into foreclosure? How bad will it be?
In many cases, filing bankruptcy is a logical, if somewhat scary decision you make when you’re out of options. If you are financially in trouble when it comes to your home, job, health insurance, and credit card debt, filing bankruptcy is wise.
This needs to be said because many individuals and families struggle for far too long before they admit they need to file Chapter 7 or Chapter 13 bankruptcy. It’s almost considered giving up. By the time you do make the decision, you’ve lost a lot already and you’re worse than you would have been if you’d made the decision earlier. That goes against why bankruptcy was created–for helping individuals rebound from tough economic times, joblessness, and outstanding debts.
So when do you make the decision? Instead of blaming yourself, file early and take advantage of the law. “You can use Chapter 7, the most popular type, only once in eight years, so draw up a ‘no kidding’ plan for living on your income when you’re finally clear,” says Jane Bryant Quinn for Newsweek.
When to file Chapter 7 or Chapter 13 bankruptcy:
-When you still have assets to protect but you’re financially stuck
-Before you decide to pay back huge bills
-When tap IRAs and 401(k)s
-When you have outstanding medical bills (which can be canceled by bankruptcy)
Speaking of IRAs and 401Ks, you should never use these as an alternative to filing bankruptcy. After all, these are your future, and are meant to provide for you later, not now. These are mainly protected by bankruptcy, so ask your bankruptcy attorney about them.
Never wait for medical treatment–dental, eye, or otherwise–because you are out of money. These can be part of your Chapter 7 bankruptcy filing, or paid back in a reasonable amount of time with Chapter 13 bankruptcy.
Since you can use Chapter 7 bankruptcy once every 8 years, it’s a clear alternative to tapping into funds your future depends on.
So how do you make the decision between Chapter 7 and Chapter 13 bankruptcy? With new bankruptcy laws, Chapter 7 bankruptcy is off the table for many. Now, people are being told to file for Chapter 13 bankruptcy. In short, Chapter 7 bankruptcy clears the majority of your debt, from mortgages, to medical bills, to credit cards. There are some nonexempt items which you may lose here.
Chapter 13 bankruptcy is less about canceling debt and more about creating a longer time frame for repayment. If you make too much money, you may be forced to file Chapter 13 bankruptcy instead of Chapter 7.
Choosing between the two calls for 1) research and 2) professional counsel. Hiring a professional bankruptcy attorney ensures your financial future will be safe.