Bankruptcy can be frightening. It can also be a solution when there’s no other way around your debt. Here are tips and suggestions to consider if you’re facing that possibility.
Some avenues to consider:
Have you remedied the problem that put you in debt (unemployment, medical bills, etc.)? Unless you have, that clean slate is going to be a waste of time. Six months from now, you’ll just have a new set of bills and no bankruptcy options.
Talk to several professionals (attorneys, CPAs or credit counselors affiliated with the NFCC or AICCCA). Then weigh the advice and decide what options work best for you.
Your options will probably depend largely on your paycheck. Under the new rules, you have to qualify for a Chapter 7 (full or partial debt liquidation). Otherwise you’ll be filing for a Chapter 13 (debt reorganization plan). But a Chapter 13 bankruptcy may make it easier to salvage valuable assets, like a home or car.
Chapter 7 bankruptcy will:
Chapter 13 bankruptcy will:
There are provisions for waiving some of the filing fees, if you need them. Discuss that with your attorney during your initial (and, it is hoped, free) consultation.
You may be able to reaffirm your loan and keep the car. But you want to do the math on the payments and car costs to decide if this is a good move. Want to rebuild your credit after bankruptcy? Make sure your lender reports the reaffirmed loan (and payments) to the credit bureaus.
Under certain circumstances (including owning a car at least 910 days — or 30 months), you may be able to keep the car, refinance your car with a new lender at the car’s current fair market value and have the balance of the old debt discharged under bankruptcy. But this can be complicated, so have an attorney walk you through it.
If you’ve gone through a bankruptcy, you can’t get a loan or hit the credit cards when life’s unexpected expenses hit. When you’ve discharged your Chapter 7, make building an emergency fund your first priority.
If you’re in the middle of repaying your debts with a Chapter 13 plan and money is tight, try to brainstorm ideas (a garage sale, or selling on eBay) to stash some cash for emergencies.