Stop foreclosure of your home

Without bankruptcy protection you have nothing to help you stop your mortgage lender from repossessing and foreclosing on your property if you’re behind on payments. Bankruptcy law can stop the foreclosure process at anytime before the sale occurs, typically you’d want to file bankruptcy chapter 13 since this chapter will allow you to reach a new agreement for paying the arrears on the mortgage. Chapter 13 makes more sense for filers who want to keep possession of a particular asset such as home. No part of your loan balance or past due payments will be discharged, this will only allow you catch up on payments.

Discharge credit card debt and other unsecured debts

When settling credit card debt with your creditors proves to be impossible because of the terms they impose, consumers have the option of filing for chapter 7 bankruptcy in which typically all unsecured debts may be discharged. Discharging unsecured debt is a way to get a fresh start, if the debt can not be discharged because the means test does not back up the level of financial hardship, the debt can be reorganized under chapter 13 bankruptcy instead with a new repayment plan that normally let’s you, the filer, come up with the repayment plan.

Stop Wage Garnishment

When judgments are brought against you by your creditors or collections agencies, one of the many weapons they use to collect payments from you is wage garnishment. This typically means that a percentage of your salary is legally withheld by your employer to send to the collectors. This percentage is not usually something that you determine but it is decided by the collectors and this often creates serious financial complications for the debtor. Filing personal bankruptcy will end of all of this, restoring the full transfer of your earnings directly to you. Early in the process of filing bankruptcy it will be determined whether you’ll benefit from either chapter 7 or chapter 13 bankruptcy, then ultimately the outcome will be that either you get a discharge of your unsecured debts or a rearrangement of your total debts under a new repayment plan, but either way the collectors no longer have the right to garnish your wages again.

Filing for divorce

When you or your spouse file for divorce the marriage may end up with a pile of assets and debts, usually more debts than assets for the average American family. Filing for divorce and dividing up the assets and debts may leave one of you with more than your fair share of debt and not enough assets. Normally you would want to file for divorce first and then file bankruptcy, however it’s best to get a bankruptcy attorney’s opinion on this. Depending on which state you are in, all assets may be considered community property and used in the bankruptcy estate, otherwise only jointly held assets can be used, then individually held assets may be used to pay for the debts inherited after the separation. Bankruptcy law and divorce law are not under the same federal code, so it’s important that you seek professional help to accurately file for both.

Being the victim of identity theft

This is perhaps the worse situation to be in, having your identity stolen, not having the adequate protection to restore your identity and clear your name, bankruptcy can be an option. However, this is only if your disputes are rejected by your creditors and you have no way of proving that the fraudulent charges were not made by you. Depending on how long and how much was charged with your accounts you could end up with a huge collection bill. As a victim of identity theft you have rights and you should contact the Federal Trade Commission, should you become a victim of identity theft and find yourself in a situation where no creditor will entertain your dispute. In this case you should only file bankruptcy if you have no other way to stop creditors from collecting from you and you have no way of proving that your identity was stolen and used by someone else.

There are many other reasons to file bankruptcy and they’re typically very unique to each individual, but the most common reason is still large amounts of credit card and unsecured debt. There are also other reasons that can be beyond your control like the divorce, a death in the family where the primary provider passes on leaving a single parent to provide for children, having your identity stolen and not being able to resolve the fraudulent charges. These are special circumstances but are not that rare.

As always remember that bankruptcy should be your last resort, if you have already exhausted every option and have found no real alternative and no feasible way to come out of debt, then begin your research phase and understand what chapter 7 and chapter 13 are all about and how they can help you. Also take advantage of a free bankruptcy evaluation by simply contacting bankruptcy attorneys in your area or filling out an online bankruptcy evaluation form to get connected with an attorney in your area.

There are very significant differences between these two types of personal bankruptcy. Under chapter 7 of the bankruptcy code, also known as liquidation bankruptcy the filer’s non-exempt assets are liquidated so that his/her creditors can be paid as much as possible before any unsecured debt can be discharged. Under bankruptcy chapter 13, the filer may be granted a debt re-adjustment, typically meaning that his/her debts will be minimized however they must still be repaid.

It’s difficult to determine on your own what the most suitable chapter will be for you, and your circumstances will be unique to your own situation, so comparing your case to others can not guarantee a definite answer. The best thing any consumer can do to figure this out is to consult with a bankruptcy attorney. Most consultations are free and normally require filling out a simple and private online evaluation form. The form you fill out will give the attorney everything they need to perform an evaluation that will not only determine if you qualify for bankruptcy, but which bankruptcy chapter you can file.

Here are some tips that can “give you an idea” of where you might be and how you may qualify for one of these bankruptcy chapters:

Chapter 7 Bankruptcy

You could qualify for chapter 7, normally if you have no income or low income in proportion to your debts. Or if you have few or no assets outside of personal belongings like clothing, home furniture and such. If after paying all your necessary living expenses you have little or no money to pay for your consumer debts, then this could also qualify you for chapter 7 bankruptcy. The thing to understand about chapter 7 primarily is that if you have a large amount of unsecured debt, you could virtually get all of it discharged if you meet the necessary requirements after being evaluated through the bankruptcy means test, which must be done by an attorney.

Also keep in mind that secured debts on the other hand, are not discharged under any chapter, they must continue to be paid for or if the debt is secured against a home or car, they must be surrendered upon discharge.

Chapter 13 Bankruptcy

To qualify for chapter 13, you must have sufficient disposable income. You must be able to prove that you will have enough income to repay the newly adjusted (reduced) debt. Typically you’ll have to come up with a repayment plan that can stretch for up to 5 years, in which you will have paid in full the agreed upon amounts of your chapter 13 repayment plan. Some of the sources you may count as income are your employment income, social security benefits, pension plan payments, wages or commissions from seasonal or contract work, welfare benefits and disability benefits among others.

If you are a business owner, you can not file under chapter 13, instead you must file under chapter 11. You can, however, file under chapter 13 as an individual and you can include business related debts that you may be liable for. Because this complicates things you must consult a bankruptcy attorney for clarification and clear direction if this is your situation.

How should you file your bankruptcy petition?

That all depends on your situation; the best advice that can be given to anyone facing serious financial stress is to take advantage of the free bankruptcy evaluations that are offered by so many bankruptcy law firms and allow an experienced bankruptcy attorney to review your case and advice which not only which bankruptcy chapter is best for you, but give you a clear picture of what you can expect after filing your case.

Please do not conclude from this article that this is a definitive guide for you to determine which bankruptcy chapter to file. This process is a lot more involved and goes beyond what this article can offer. As mentioned before, all cases are different due the unique circumstances that surround each individual.

People file bankruptcy for a lot of reasons, having tons of debt does not automatically qualify you for any specific chapter, other reasons for an individual needing to file bankruptcy include going through a divorce, having suffered a death in the family in which the primary income provider passes on and also having been the victim of identity theft and not being able to resolve the debts with creditors. All these different reasons and the specific circumstances surrounding those issues will have to be analyzed by a professional attorney in order to determine the best route.

If you are still considering filing alone, read an earlier post where I discuss filing bankruptcy alone vs hiring an attorney.

Should I file bankruptcy? What’s a good alternative to bankruptcy?

By now you know that filing bankruptcy should be your last resort. Coming up with an alternative to bankruptcy when you’re stressed and losing sleep can be difficult so here’s some help. But outside of what is listed here, whatever options you believe are possible, research and consider all options to decide whether that alternative is realistic and feasible for you. The following are some of the most common alternatives to bankruptcy:

Renegotiate with your creditors: This can be a successful bankruptcy alternative when dealing with unsecured debt, make them understand that if renegotiating is not possible, they will lose all the money you owe them if you have to resort to personal bankruptcy. This, as you know, is the case with unsecured debt under bankruptcy chapter 7, it gets discharged with no further obligation to you. Secured debt on the other hand will be a little more complicated but still possible. Your home lender or car financing company will know that they must wait around without your payments for months if you have to file bankruptcy. So they may listen to your case but are more than likely going to try to take you through a refinancing deal, which could actually accumulate other costs. So be careful there, this is a renegotiation that needs to benefit you the most.

Debt Consolidation Services: This also could work out well for your unsecured debt, but not all debt consolidators work the same so you need to shop around. You must also be careful with the terms of this deal, some debt consolidation alternatives will cost you more for the simple plan of grouping all your debts into one bill. Many of these agencies can really help, but there are many that only pose as non profit organizations for debt consolidation and are only interested in profit, so do your homework and research them before you agree to anything. You must insist on better rates and this can be an excellent bankruptcy alternative especially if your credit is still in good standing.

Debt Reduction Lawyers: Depending on your current budget this can be an effective bankruptcy alternative as well, since a lawyer would be much better at negotiating terms and rates for you, a creditor will likely respond better to talking to a lawyer than talking to you directly. A lawyer can deal with every single creditor for you and help you take advantage of special provisions and hidden laws and tricks that creditors don’t like consumers to know, but are legal. Your local yellow pages book will have tons of listings for law offices that can provide these services.

Professional Credit Counseling: One of the most common services to consumers and not necessarily a bankruptcy alternative in all cases. If you don’t see the end near you yet, but you see the direction your finances are taking and are uncertain about what to do to avoid collision, professional debt counseling could be what you need. A professional credit counselor is going to suggest drastic changes in your financial routines. They’re not going to ease you into these changes, they will most likely be very straight forward about what needs to change. It is up to you enforce these changes and make this alternative work or you could in fact end up filing bankruptcy

Other sources: Other sources of help may be possible, you may have volunteer groups in your area of perhaps you local church may be able to direct you in the right path. People in these groups are often able to help without charging anything if they offer services. Whatever option you choose, please take care not to simply borrow more money to repay debts, by doing this you’re simply shuffling balances around to temporarily satisfy debts, while accumulating debt in other areas, not really a good bankruptcy alternative.

Don’t let anyone talk you into taking out a line of credit on your home, especially if you’re dealing with unsecured debt. If you do this, you will have taken that unsecured debt and made it secured against your property. Most lenders will tell you this is a good idea. Their job is not to give financial advice, their job is to sell and they sell well because often people don’t know any better, so this is also not a good bankruptcy alternative.

If none of these options seem feasible to you for whatever your circumstances, then it is probably best that you begin your process by first consulting with a bankruptcy attorney. Get all the facts about your case. Not all cases are the same, the conditions will depend on what you owe, what assets you have and whether you’re employed or not. Consult with at least three different attorneys, most consultations are free and you’ll find that some law offices are more personable and more sympathetic than others. During this consultation take the liberty to ask your attorney for any bankruptcy alternatives he or she can recommend, again they may be able to come up with something you haven’t thought of.