Choosing to File Personal Bankruptcy

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As the economy sinks deeper, more and more consumers are filing bankruptcy due to job loss, rising debt, and unexpected personal issues such as medical bills or divorce. For most, bankruptcy is a last resort, so consider these aspects when deciding to file bankruptcy.

Your Income - When considering bankruptcy you will have to provide the courts your average income for the last 6 months as well as your tax returns from the previous 2 years. Your income must be within a range of standard income for your family size based on where you live in order to be eligible to file for Chapter 7 bankruptcy. If your income is higher than this level you may be forced into a Chapter 13 where you will have to create a repayment plan to pay part or all of your debts. Your income will be listed on the Means Test in a Ch 7 and compared to averages listed here to determine if you meet the criteria to file bankruptcy.

Your Debts - Obviously your debts are a big part of why you are thinking of filing bankruptcy. In a bankruptcy there are secured debts, unsecured debts, priority debts and contracts/leases. Secured debts are tied to property such as a mortgage that is tied to a house, or a loan that is tied to a car. Unsecured debts are things like credit cards (there can be secured credit cards as well), or medical bills where if you stop paying them, no property can be taken from you. Priority debts are debts that the government says you can't get out of paying even if you file for bankruptcy, such as back taxes. You may also have contracts such as your cell phone or a car that you have leased.

If you are still in the process of deciding to file bankruptcy, it's worth it to contact each of your creditors to see if you can work out a payment plan with them yourself that would affect your credit less than a bankruptcy. Debt settlement and credit counseling are of course two additional options.

Your Property - Filing bankruptcy of course opens up the possibility that you may lose some of the things you own. You will have to list all of your property on your bankruptcy petition, including clothing, furnishings, investments, even animals you own, and their value. Each state provides bankruptcy exemptions with limits for how much property you can keep, meaning your property is exempt from being taken by the bankruptcy courts. Anything above these amounts is subject to being sold in a Chapter 7 bankruptcy to help pay your creditors. Chapter 13 allows you to keep your property if you are able to pay it, including your home even if you are behind on payments, as you can include the debt in your payment plan.

In order to make the best decision about filing bankruptcy, you need to be able to look at your income, debt and property all at once to determine if bankruptcy is the right option for you. An experienced bankruptcy attorney can give you a free consultation to guide you, along with any credit counseling agencies or debt settlement companies so you can make an informed decision.