There are no set rules as to whether or not you should consider filing bankruptcy, but there are some warning signs to consider. A divorce, loss of income or other major financial setback may be enough, depending on your circumstances. If you can’t make the minimum payments on your credit cards or other financial obligations, creditors are calling you on a regular basis, or your home is in foreclosure, it may be time to speak with a bankruptcy attorney.
Are There Bankruptcy Alternatives?
When deciding whether or not to file for bankruptcy, there are a few bankruptcy alternatives to consider. One bankruptcy alternative that many people choose is debt consolidation, or credit counseling. Most reputable credit counseling agencies have agreements with all of the major creditors to lower or, in some cases, eliminate your interest rate for a period of time. Under your consolidation agreement, you make one payment to the agency every month, and they disburse the funds to all of your creditors.
Another great bankruptcy alternative is a home equity loan. If you own your home and have some equity built up, you may be able to take out a home equity loan to consolidate and pay off all of your unsecured debts. The payments on this type of loan are usually stretched out over 10 years or more, and the interest rates are typically much lower than those on your unsecured lines of credit. You may also find that the payment on a home equity loan is quite a bit lower than the combined payments of all of your other debt. As an added bonus, as long as you make regular payments on your home equity loan, it will have a positive effect on your credit; unlike a bankruptcy, which can negatively affect your credit for up to 10 years. That makes this a very attractive bankruptcy alternative.
Types Of Personal Bankruptcy
If you have exhausted all of your bankruptcy alternatives, you need to decide which type of bankruptcy you qualify for. Bankruptcy laws may vary from state to state, but for most people there are two options for discharging your bankruptcy debt. When you see your bankruptcy lawyer, he will explain the types of bankruptcy available to you, and help you decide which is right for your situation.
The first option is Chapter 7 Bankruptcy. When filing for chapter 7 bankruptcy, you are asking the court to discharge all of your debts. Whether or not you qualify to file for chapter 7 bankruptcy depends largely on your income. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, to qualify for chapter 7 bankruptcy you must first pass a “means test.” This test compares your income to the median income of your state (in this case, Michigan). If your income for the last six months is below the median, you can more than likely file for chapter 7 bankruptcy. If you make more money than the median you may still qualify, but there are certain other criteria you must meet first.
If you don’t qualify for chapter 7, or just hold a personal conviction to pay all of your debts no matter what, then your other option is Chapter 13 bankruptcy. Under chapter 13, you propose a payment plan to the court, usually extending over 3 years, to satisfy all of your delinquent debts. While you are making these payments, chapter 13 protects you from collection efforts from any and all of the creditors involved.
Who Is Eligible For Chapter 13 Bankruptcy?
Any individual is eligible to file for chapter 13 bankruptcy. Even if you’re self employed, as long as you’re not running an incorporated business, you are eligible for protection under chapter 13 of the US bankruptcy code. There are some stipulations, though. If your unsecured debt is more than $269,250, or your secured debt is over $807, 750 you can’t file. Also, if you’ve had a bankruptcy petition dismissed in the last six months due to willful failure to appear before the court, or otherwise failing to comply with the court’s orders, you will not be able to file for chapter 13 bankruptcy.
A Fresh Start
Whichever way you go, remember that bankruptcy is not the end of the world. You can look at the period after your bankruptcy as a new beginning. This is your chance to rebuild your credit, and restore your good name. With a little guidance and a few changes in your spending habits, you can get back on the right track in no time.