Prior to filing bankruptcy, individuals need to consider the requirements, limitations and benefits of doing so. Every situation is different. However, those who have excessive amounts of debt and are having difficulty repaying it will find that filing bankruptcy will offer the best long-term financial outlook. However, to do so, you do need to take steps to qualify.
Know the Income Requirements to File
One of the rules to know about filing bankruptcy is the income requirement. In order to file Chapter 7, which is the form of bankruptcy in which most debt is discharged, your income must be no more than the median income for your state. Your state’s website can provide this information. In Chapter 13, or debt reorganization, this is not a factor.
Other Requirements and Rules
What else should you know about filing bankruptcy? Consider the following:
1. You must have dischargable debt. Student loans, most back taxes, alimony and child support are some of the types that cannot be discharged.
2. You can only file Chapter 7 bankruptcy every eight years. You may be able to file Chapter 13 every six years if you need to do so.
3. You must go through credit counseling prior to filing. This process must occur within the six months prior to filing your bankruptcy documents. You will need to submit a certificate of completion of this process.
4. You need to choose the type of bankruptcy for you. Those with assets that may be at risk in Chapter 7 may want to consider filing Chapter 13 to avoid losing those assets. However, most consumers will benefit from Chapter 7 instead.
5. Once you meet with an attorney and discuss your options in filing bankruptcy, it is still up to you to make the final decision. Understanding the rules to filing bankruptcy is just the start.
What to Keep in Mind
1. Before you sign the documents required to file, you need to take a good look at what this will mean for you in the long term.
2. This will remain on your credit report for up to ten years. That could make obtaining new loans, credit cards and even insurance harder to do.
3. You may still have to pay some debts. If you are planning to keep your car loan or mortgage, you will need to affirm these debts during the process. You’ll also need to keep them up to date.
4. If you are considering Chapter 13, you will need to pay the bankruptcy court a set amount of money every month for three to five years to repay some of what you owe. This could mean a long time of living frugally.
Even if you are unsure if filing bankruptcy is right for you, talk to an attorney about doing so. Find out if you qualify based on the Means Test (income verification) that this legal professional will provide to you. Then, you need to make a decision whether or not to make this big financial decision. For many, it is the ideal choice.
Biljana is a online writer currently exploring and publishing useful information on personal bankruptcy in Australia and worldwide.