Should I File for Bankrutpcy?
Making the decision to file (or not to file) bankruptcy could possibly be one of the biggest financial decisions you will make in your life.
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Making the decision to file (or not to file) bankruptcy is a big one. While getting a fresh financial start through Chapter 7 or Chapter 13 bankruptcy can be a lifesaver for some people, it's not the best solution for others.
In order to make the best decision for your financial situation, make sure you learn about the different types of bankruptcy, understand what will happen to your debts and property, and consider alternatives to dealing with your debts. Here are some things to consider before you decide to file for Chapter 7 or Chapter 13 bankruptcy.
Understand the Different Types of Bankruptcy
Most people have two options for bankruptcy: Chapter 7 or Chapter 13.
In Chapter 7, often called a "liquidation" bankruptcy, most (and sometimes all) of your debts are discharged (wiped out). In exchange, you may have to give the bankruptcy trustee your nonexempt property. Most people have little nonexempt property. (To learn more about Chapter 7 bankruptcy, see our topic area on Chapter 7 Bankruptcy.) Not everyone is eligible for Chapter 7 bankruptcy. To find out if you are, see The Bankruptcy Means Test.
In Chapter 13 bankruptcy you keep your property, and repay some of your debts over the next three or five years. If your debts are too high, however, you may not qualify for Chapter 13. To learn more, see Chapter 13 Bankruptcy: An Overview.
Know Which Debts Won't Be Wiped Out
Not all debts are discharged through Chapter 7 bankruptcy or at the end of a Chapter 13 repayment plan. Examples include student loans (except in rare cases), certain tax debts, and child support. To learn more, see How Bankruptcy Works.
Learn What Happens to Your Property
Many people filing for bankruptcy are concerned about their homes, cars, retirement plana, or perhaps another type of property. Before you file for Chapter 7 or Chapter 13 bankruptcy, make sure you know how your important property will be treated.
You can keep your home in Chapter 13 if you remain current on your mortgage and make up any arrears through your repayment plan. You may lose your home in Chapter 7 if you are behind on your payments or if you have a significant amount of equity in your home. To learn more, see Saving Your Home From Foreclosure With Bankruptcy and Chapter 7 Homestead Exemption.
You can probably keep your car in Chapter 13 if, like your home, you are current on your car loan payments and make up any arrears through your plan. In Chapter 7, you might lose your car if you have lots of equity (which is usually not the case for most car owners) or if you are behind in your payments. To learn more, see How to File Bankruptcy Without Losing a Car.
Your Retirement Accounts
For the most part, retirement accounts are safe in both Chapter 7 and Chapter 13 bankruptcy. To learn more, see 401k Retirement Accounts and Bankruptcy.
Review Bankruptcy Alternatives
Bankruptcy is not the only solution to debt problems. Depending on your goals, your income, and the amount of your debts, a path other than bankruptcy may work better for you. For example, you might be able to enter into a debt consolidation plan, negotiate with creditors, or perhaps do nothing. To learn more see, Bankruptcy Alternatives.
For clear-cut answers, information, and strategies to help you figure out whether bankruptcy is the right solution for your debt problems, see The New Bankruptcy: Will It Work for You? by Stephen R. Elias (Nolo).