Bankrupcy: Should I File? How Will It Affect Me?

Anyone with a large amount of debt that cannot be paid can consider bankruptcy. Since bankruptcy is a last resort proposition, it should be reserved for situations where there is no practical way to repay large debt on a repayment plan.

One good place to start would be to get credit counseling, preferably through a non-profit organization. Filing for bankruptcy requires credit counseling anyway, so it is a good idea to have someone actually crunch the numbers and determine whether bankruptcy makes sense, before you start the process. Oftentimes these credit counseling agencies have programs available at a very low cost—or no cost—to negotiate a payment plan. If bankruptcy is appropriate then one should discuss this matter further with your LegalShield Attorney.

One effect of filing bankruptcy involves your credit score. A bankruptcy situation usually involves debt that’s more than 90 days old, so if you’re in a position to file bankruptcy, it’s likely your credit score has already been adversely affected. Once you file, there can be an additional hit on your credit score which in some cases can be 200 points or more. Keep in mind that once the bankruptcy is finalized and payments to creditors after the filing are current, one’s credit score will often pick up rather quickly.

For personal bankruptcy, the choices are either a Chapter 7 or a Chapter 13. A Chapter 7 is also called liquidation, which involves discharging debt and starting all over with a clean slate. A Chapter 13 is also called reorganization. This means you’d be paying back your creditors on a negotiated payment plan, usually over the course of 3-5 years. Because Chapter 13 is more involved with maintaining the payment plan and coordinating with the bankruptcy trustees over time, it is more costly than a Chapter 7 bankruptcy.

Exemptions are another important matter to consider. These are assets in debts that are not included in the bankruptcy. Generally speaking, you’ll be to keep your homestead, car, and retirement accounts. There are either state or federal limits to these, so much depends on what state you live in when filing. Things that are generally not dischargeable in bankruptcy include taxes and child support.

There are many factors to the filing of bankruptcy including timing of when to file. As always, it is best to consult with your LegalShield provider firm for a more detail analysis.

Attorney Robert J. Carlson