Should I file for bankruptcy?

Filing for bankruptcy is a personal decision, and many factors need to be considered, including your risk factors, the advantages and disadvantages, the types of bankruptcy you should file for, the affect on your future credit, and the expense of filing, all of which are discussed below.

What are my alternatives to bankruptcy?

Although bankruptcy is often the best solution to your financial woes, you do have other options, including negotiating with your creditors, debt counseling, and doing absolutely nothing, all of which are discussed below.

Am I at risk for bankruptcy?

Before you assess your bankruptcy options, it’s important to investigate whether or not you are at risk. So, the first thing you need to do is examine whether you are consistently late in payments, whether you have met or exceeded your credit card limits, if you are able to even make minimum credit card payments, or if you have to resort cash advances or credit lines to pay off your bills. If so, and if you are still making payments on things you no longer own or if you’ve been denied credit recently, you are at a high risk for bankruptcy and should consider making some changes.

Is it a good idea to file for bankruptcy?

Filing for bankruptcy depends on your individual situation and your personal circumstances. Some people simply file for bankruptcy in order to hold onto their assets (like their house or car), while those with no assets often file for bankruptcy because their financial situation necessitates it in order to stay out of emotional and financial distress. Bankruptcy is a better option for those whose debts are primarily unsecured (credit cards), whose debts amount to more than can be paid in five years time, are being hassled by collection agencies at home or at work, and who are unable to pay your taxes, generate savings, or avoid property repossession. If your wages are being garnished, bankruptcy is an extra help, because it stops garnishment (except for in cases of alimony, child support, or back tax payments).

What are the advantages to filing for bankruptcy?

Foremost among the advantages in filing for bankruptcy is the ability of a debtor to get a fresh start by having many of those crippling debts discharged or reduced. Furthermore, filing for bankruptcy kicks in an automatic stay; this stops creditors from harassing the debtor directly, through phone calls or letters. And although filing for bankruptcy will negatively affect your credit, trying to pay off debts you are unable to pay, missing payments, and delinquencies can have the same affect, and can often affect your credit report for just as long or longer. Filing for bankruptcy may allow you to start all over much sooner and with a lot more peace of mind.

What are the disadvantages to filing for bankruptcy?

What are the disadvantages to filing for bankruptcy?

The biggest disadvantage to filing for bankruptcy is the stain it puts upon your credit report, which could affect you from making any major purchases for up to ten years. However, bankruptcy does not always prevent you from getting credit; indeed, a great deal of people who file for bankruptcy are able to get credit lines within three years, though interest rates might be higher. Moreover, if you file for bankruptcy, you will lose your credit cards, you may lose your nonessential possessions, you won’t be able to obtain a mortgage for many years, many of your debts will not be discharged, and you face potential embarrassment.

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Which bankruptcy chapter should I file for?

In most cases, individuals decide to file for Chapter 7 bankruptcy, because it allows them to completely discharge most or all of their unsecured debts. Chapter 7 is advantageous because it is fast, easy, and allows the debtor to get on with his or her own life without having to bother making payments, as required under a Chapter 13 reorganization plan. Chapter 7 allows an individual to keep his or her car and house, and discharges all debts, except for student loans, taxes, and support payments (alimony, child support). So, why file Chapter 13? Many people feel that they have a moral obligation to pay back their debts, in which case Chapter 13 is the better option. Moreover, many people - who have adequate income - are forced into Chapter 13 by their bankruptcy trustees. Furthermore, in a Chapter 13 situation, debtors are only required to pay back what their assets are worth and not what is owed. Likewise, if most of your debts are nondischargeable (student loans, taxes, etc.), Chapter 13 allows you to pay those debt back over a period of time.

How much will it cost to file for bankruptcy?

One of the several things that you cannot discharge in a bankruptcy is the fees it costs you to file. The actual filing fee is around $200, but you will probably need the services of a competent attorney (especially if you are filing Chapter 13), which can run you another $500 to $1000 for Chapter 7, or $1000 to $1500 for Chapter 13. The attorney’s fee, however, can be discharged during your bankruptcy, which is why your attorney will most likely ask for the entire fee up front.

How will bankruptcy effect my credit?

The truth is, filing for bankruptcy can stay on your credit report for up to 10 years (though it’s usually seven for Chapter 13). But, this is not necessarily a strict barrier against gaining credit again; credit card issuers know that - after you file for Chapter 7 protection - that you have no debt, and you can’t file for bankruptcy for six years, so you’re often an ideal candidate to receive more credit cards. Acquiring a mortgage or a car loan, on the other hand, may be much more difficult to secure; but if you’re in a position in which you are considering bankruptcy, a home mortgage may be seven to 10 years away anyway. Finally, probably the most common difficulty after filing for bankruptcy is finding a landlord who will approve your application; in those cases, cosigners, advanced payments, and roommates may be necessary. You can find more information in our rebuilding credit section.

Can I keep my credit cards if I file for bankruptcy?

Not really; if you discharge the credit card in bankruptcy, obviously, you are going to lose that card. However, if you don’t include a particular credit card in your bankruptcy proceedings, you may be able to hang on to it, at least until the credit card company finds out that you filed for bankruptcy, in which case the issuer may decide to stop your credit line. For cards that you are not in default on, or are paying regularly and are current, you also have the option of not including those in your bankruptcy and hanging on to it, but why would you? If you are going to file bankruptcy, you may as well have all of your debts discharged, right?

Will filing for bankruptcy affect my job or my job prospects?
First of all, federal law does forbid employers from firing anyone for filing bankruptcy. If you file for Chapter 7, it’s likely your employer won’t find out anyway, so it’s not a huge problem. If you file for Chapter 13 bankruptcy, you will probably have your wages garnished as part of the plan, in which case your employer might find out. This might cause some embarrassment, but it cannot be cause for termination.

Furthermore, if you apply for a government job (federal, state, or local), you cannot be denied employment for having had filed for bankruptcy. However, there are no such prohibitions on private employers, and if a private employer runs a credit or background check and learns that you have filed for bankruptcy, the employer may find that to be indicative of your character and refuse to hire you under the belief that you would be an irresponsible employee. This, however, is probably very rare, both for your prospective employee to find out about it, and for that same employer to deny you a job based upon it.

What if I just don’t do anything?

Here’s a novel approach to financial problems: Do absolutely nothing. Why? Because you can’t be thrown in jail, and if you have no assets, a creditor likely won’t bother trying to sue you in court, knowing that it won’t receive anything for its efforts. As you can imagine, this is not the best approach for most people: If you have actual property (a house or a car), then failing to make those payments can result in repossession. Likewise, if your debt is in the form of student loans or back taxes, doing nothing is not a very good approach; then again, you can’t discharge these debts through bankruptcy anyhow.

However, if your debt consist of unsecured debts (credit card bills) and you are judgment proof (i.e. flat broke, with no assets), sometime the better approach just might be to stop making payments, your creditors probably will not bring a lawsuit against you, and will likely just write off the debt; if you fail to pay it, after the statute of limitations has passed (four to ten years), then it is no longer collectible. Sure, it will go on your credit report, but it probably won’t hurt you any worse than a bankruptcy would. Furthermore, this approach probably will not stop creditors from harassing you, either by mail or telephone.

What if I just don’t do anything?

Here’s a novel approach to financial problems: Do absolutely nothing. Why? Because you can’t be thrown in jail, and if you have no assets, a creditor likely won’t bother trying to sue you in court, knowing that it won’t receive anything for its efforts. As you can imagine, this is not the best approach for most people: If you have actual property (a house or a car), then failing to make those payments can result in repossession. Likewise, if your debt is in the form of student loans or back taxes, doing nothing is not a very good approach; then again, you can’t discharge these debts through bankruptcy anyhow.

However, if your debt consist of unsecured debts (credit card bills) and you are judgment proof (i.e. flat broke, with no assets), sometime the better approach just might be to stop making payments, your creditors probably will not bring a lawsuit against you, and will likely just write off the debt; if you fail to pay it, after the statute of limitations has passed (four to ten years), then it is no longer collectible. Sure, it will go on your credit report, but it probably won’t hurt you any worse than a bankruptcy would. Furthermore, this approach probably will not stop creditors from harassing you, either by mail or telephone.

Is credit or debt counseling a good idea?

That largely depends on what kind of credit counseling agency you use, whether they create a manageable budget and repayment plan for you, whether you have enough disposable income to support a repayment plan, and whether or not you actually follow through. In some instances, and with the wrong credit counseling agency, you can wind up in worse trouble than you are now, or simply end up delaying the inevitable. To make a decision on whether to use credit/debt counseling agencies, it’s important to understand how they work.

How does debt management work?

This is how credit counseling works: A reputable credit counseling service will examine your debts and your income and come up with a budget. Based on that budget, the counselor (in consultation with your credit0rs) will devise a repayment plan. In turn, you will pay your credit counseling agency once a month, and the agency will distribute the money to your creditors, keeping a small percentage for the agency. Your credit counselor will probably be able to get some concessions from your creditors, such as waiving interest fees and late payments, lowering the minimum monthly payments, and the opportunity to reinstate your credit if you complete the debt management process. Debt management is actually rather similar to filing for Chapter 13, only it doesn’t appear on your credit report, and stay for 10 years thereafter. However, unlike Chapter 13, if you miss a payment, your debt counselor can cancel the plan, and your debt counselor cannot discharge any of your debts; instead, all your unsecured debts will have to be paid back fully.

Should I enroll in a debt management program instead of filing for bankruptcy?

In some cases, debt counseling can work, if you are not already to far gone in the credit game, or if it’s only a matter of excessive late fees, a few missed payments, or minimum payments that are too high to keep up with. However, in some cases, debt counseling is merely delaying the inevitable. No matter what debt management programs say, they cannot erase a bankruptcy record, fix accurate marks on your credit report, or expunge all of your credit card debts. At best, they can get rid of late fees and lower the interest rates and the minimum monthly payments; however, in exchange, they will charge you a fee as well, and the program may allow you to make your payments, but it doesn’t ensure that your debt will be paid down quickly. Still, if your debt is manageable, and you have a steady income, debt management can keep you from having to ruin your credit, and may allow you to pay off your debt in a responsible manner.

What is CCCS (The Consumer Credit Counseling Service)?
The Consumer Credit Counseling Service (CCCS) is the oldest, and probably most respected, credit or debt counseling service in the United States. In fact, there are several agencies that go by the name CCCS, but they are all affiliated with the National Foundation for Consumer Credit. For a small start up fee, and an additional monthly fee (which is waived if you meet the waiver qualifications), CCCS sets up repayment plans for its clients, as well as helps its clients set up budgets.

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Which bankruptcy chapter should I file for?