What You Should Know Before Filing Bankruptcy

There are millions of Americans who have a large amount of debt. Many of these individuals are unable to repay their outstanding debt. However, individuals should not automatically admit defeat. There are many factors that anyone in severe debt distress must weigh. Here is the major facts on what you should know before filing bankruptcy.

First, individuals should know that their credit will be ruined. There are two types of bankruptcy declared by most creditors in the United States. Chapter 7 is the most common type of bankruptcy. An individual who declares Chapter 7 bankruptcy is allowed to keep a certain portion of their property. The amount they may keep varies from state to state. However, individuals must allow the court to sell off any property that exceeds the amount allowed by law. The proceeds from the sale of this property goes towards the outstanding debt that an individual owes. A bankruptcy filing stays on a credit report for ten years. Individuals who declare bankruptcy will always have their bankruptcy shown when a credit check is conducted after applying for a home mortgage over $100,000, a job that pays over $100,000 and when a background check is conducted for a government security clearance.

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Second, anyone filing for bankruptcy should be aware that they will lose most of their assets. Chapter 7 bankruptcy is the most common type of bankruptcy, but individuals who file for Chapter 13 bankruptcy will have to file a budget as well as meet other court requirements. This is typically done with the assistance of a bankruptcy attorney who can charge thousands of dollars by the end of a bankruptcy proceeding. Individuals undergoing a Chapter 7 bankruptcy should be aware that they will retain any asset that has a lien. For example, a home that has a mortgage will continue to be paid unless the loan is discharged during the bankruptcy. The same is true for an automobile loan. However, a $20,000 car that has no loan and is above the $5,000 limit must be sold to recover the excess funds. Individuals will receive a check from the court for $5,000.

Third, consumers should consult an attorney. The laws that govern bankruptcy are ominous and difficult for many consumers to completely understand. Individuals who believe they need to file bankruptcy should speak with a bankruptcy attorney to discuss their options sooner rather than later.

Fourth, individuals should understand that not all debt is able to be discharged in a bankruptcy. There are certain types of debts such as child support, government backed student loans, outstanding federal tax debts and legal settlements. Other debts may not be discharged due to state law or at the discretion of the judge.

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