20 Questions To Ask Yourself Before Claiming Bankruptcy

Statistics suggest that more people under the age of thirty are resorting to bankruptcy to alleviate the burden of paying off debts. But there is more than just filing for bankruptcy. You have to weigh your personal situation and financial standing before you make the ultimate decision to file for bankruptcy. With careful personal assessment, you might find that you can very well do without claiming for bankruptcy. But should you opt to choose to do so, there are certain factors that you have to first consider to determine whether you are making the right the decision.

Questions to Consider

Has your salary been previously garnished?
If the answer is in the affirmative, then you should consider filing for bankruptcy. If the income you are depending on is allocated for answering another debt and you still have other unsecured debts, it would be difficult for you to pay off all your obligations since you still need a part of your earnings for sustenance. Having your salary subjected to garnishment will lead you deeper into debt; hence you should consider claiming for bankruptcy. However, if your creditors have acquired judgments for garnishing your wages, filing for bankruptcy may help you retrieve part of your garnished salary.
How much asset do you have?
The number of assets you have will determine whether you are able to answer for any unsecured debts owing to your creditors. If your assets are not sufficient to cover your debts, meaning you have few assets, then it is highly probable for you to file for bankruptcy. Should these assets be liquidated, it will still fall short of the amount that you owe.
How will bankruptcy affect your credit score?
Filing for bankruptcy will negatively affect your credit score. Worse, it will place you in a difficult situation should you decide to borrow in the future. This record usually appears for ten years in your file.
What happens if I don’t disclose my bankruptcy history on record?
There are loan applications that require information whether you have previously filed for bankruptcy, no matter how long ago it was. Concealing such a fact will lead to fraud.
Will you lose all your chances to improve your credit score?
Not necessarily. Despite bankruptcy, you can still get credit and improve your credit score. However, having a history of bankruptcy will limit your chances of getting better rates. Your rates would be higher.
Have you tried striking a bargain with your creditors?
Negotiating with your creditors may prove bankruptcy to be unnecessary. Offering creditors reasonable payment terms may veer you away from filing for bankruptcy. This way, you are still providing creditors the opportunity to receive their money without hurting your credit score more.
Have you consulted a credit counselor?
While consulting a credit counselor seems a trite concern, many are missing out on a significant factor that can help you stay away from bankruptcy. Credit counselors can help you find lower rates for the interest incurring on your debts, should your request from creditors fall on deaf ears. Moreover, credit counseling is mandatory before you file for bankruptcy. But make sure that the credit counselor you are dealing with belongs to the U.S. Trustee Program’s list.
Do you have an existing savings?
Should your answer be in the negative, then you should file for bankruptcy.
How often do you use your credit cards?
If you are using your credit cards to pay for all your necessities because you do not have enough cash, you ought to consider filing for bankruptcy.
How does your income fare compared to your debts?
An author stated that if your debt is twice your annual income, then you ought to start filing for bankruptcy. It would be difficult to settle your financial obligations twice the size of your income.
Are your unsecured debts greater than the secured ones?
For average income earners, it is important to determine whether the unsecured debts weigh more than the secured debts. If most of your debts are not supported by a collateral or a lien, then it would be difficult to settle these if you are just depending on your salary. Should your unsecured debts be greater, then bankruptcy is the way to go.
Why is it important to gauge whether your debts are secured or not?
This question hinges on the type of bankruptcy you will have to file. If most of your debts are unsecured, you will file the Chapter 7 bankruptcy. Otherwise, you will most probably file a Chapter 13 bankruptcy.
What is the difference between the chapters of bankruptcy?
Chapter 7 bankruptcy obliterates your outstanding debts. Chapter 13, on the other hand, provides a maximum of five years where you can repay your debts through a plan. If you have debts outside the repayment plan, these will be cancelled.
When does the debt-to-equity ratio become important?
This ratio becomes important if you are a company considering bankruptcy. This principle measures how much a company is allowed to borrow for long periods.
Will bankruptcy cancel all your debts?
No. Debts like child support, alimony, student loans, and debts resulting from fraudulent activities cannot be cancelled. Neither can a bankrupt person refuse paying back taxes. Although on certain exceptions, a bankrupt person may qualify upon compliance with the requirements.
What is the legal age requirement to file for bankruptcy?
There is no age requirement under the bankruptcy law.
Will I lose everything I have due to bankruptcy?
No. For single debtors, the law allows them to exempt a maximum of $6,000 on their property. For married debtors who have jointly filed for bankruptcy may exempt a maximum of $12,000. There are also exemptions granted by each state such as “tools of the trade” and personal effects.
Will I lose my home to bankruptcy?
Not necessarily. It depends on the agreement you have with the creditor. If you are late in your payments, say for your home, creditors will have the right to foreclose it. Should you file for bankruptcy, you can propose a payment plan so you can continue paying for your home.
Do I need to consult a lawyer before filing for bankruptcy?
It is not mandated by law that you get a lawyer for bankruptcy proceedings. However, consulting a lawyer is important before filing for bankruptcy, so that you will know the options available to you and how best you can proceed with it.
How much is the filing fee for bankruptcy?
The fee is at $120. It is advised that you look for a lawyer who is familiar with this practice and within your area. However, for bankruptcy in Chapters 11-13, the fees are higher, being more complex in retrospect.

For more information, the following is a list of agencies and organizations that can help you.

Federal Trade Commission
Toll Free: 1-877-FTC-HELP (1-877-382-4357)

U.S. Trustee Program
202-307-2759

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