YOU may have a stack of bills every month that you can’t pay. The late fees are piling up and high credit card balances with outrageous interest rates don’t help your situation. As you look at your finances, you realize that bankruptcy may be a good solution for you. Even if this is where you are financially, you shouldn’t file for bankruptcy until you’ve weighed the consequences associated with bankruptcy.
Weigh the consequences of bankruptcy by meeting with a credit counselor to review your assets and liabilities. Credit counselors go over the pros and cons of bankruptcy and recommend what they feel is your best course of action.
Talk with a bankruptcy lawyer. Bankruptcy lawyers offer a consultation for a small fee (sometimes free) and provide you with information on current laws. Use this meeting to ask questions and address concerns you have with filing bankruptcy.
Know what type of bankruptcy you can file. Chapter 7 bankruptcy discharges all allowable debts under the bankruptcy laws. In order to file a Chapter 7, you may have to pass a means test that shows your income is below the required state level for a Chapter 7. If you make too much money, you’ll have to file Chapter 13, which is a repayment plan. You’ll still eliminate a large portion of your debt, but you do have to fulfill the repayment plan.
Realize that you might lose your home or possessions. Most states, like California, allow you to keep a certain amount of equity in your home, car and possessions. However, if you have more equity than the allowed amount, your court-appointed trustee sells any non-exempt assets. You need to weigh if it’s worth the consequence of losing a few things in order to eliminate your debt. If you have enough assets, you might want to sell them yourself and pay your debts off.
Say goodbye to good credit. Filing for bankruptcy shows on your credit report for up to ten years. Even after that, some creditors can find this information and refuse you credit. Rebuilding your credit takes effort and time. While you may not be able to buy your dream home any time soon, you can possibly get a home loan within two years of filing bankruptcy.
Plan on paying your new debts. Bankruptcy laws prohibit you from filing for another bankruptcy for the eight years following your bankruptcy. Some debts like your mortgage and car loans can be reaffirmed, which makes them exempt from the bankruptcy. You need to weigh this consequence to the possibility of unplanned medical expenses or a failed business in the next few years.
Make your student loan payments, child support payments and taxes owed, if any. These generally cannot be discharged even if you do file bankruptcy. You might be able to get forbearance and delay payments for up to a year. Once you file a bankruptcy, some student loan companies may refuse to grant a hardship, deferment or forbearance.
After completing the bankruptcy process, the most important thing you must do is change your spending habits. Replace poor spending decisions with wise choices to change the direction of your financial life.
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Evangeline can be reached at her marketing location at the Ground Floor of Eagle Rock Plaza (in front of Jollibee), 2700 Colorado Blvd., Los Angeles, CA 90041 or at her business address at 655 N. Central Ave., 17th Flr., Glendale, CA 91203, phone number (323) 356-3803 or (323) 254-6787.
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The purpose of this article is to provide information of general interest to our clients and prospective clients. The information provided is general in nature and should not be considered complete information on any product or concept described.
( Published October 10, 2009 in Asian Journal Los Angeles p. C4 )
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