Disclaimer: Bankruptcy laws can vary widely depending on the state or country in which you live. While a common set of guidelines applies to most bankruptcies, it is important that you research the specifics of the bankruptcy laws in your state before filing for protection.
Bankruptcy is misunderstood in most western countries. While there is significant stigma attached to bankruptcy, most people are not aware that , for people who already have poor credit or are seriously behind on bill payments, bankruptcy is typically very helpful and beneficial in the long run. Additionally, bankruptcies that are filed in times of national economic stress, as in the period beginning with 2006 and still ongoing, are often ignored or greatly discounted by lenders years down the line. With that said, let’s go through the bankruptcy process.
Determine if you are a good candidate for bankruptcy
There are generally two types of bankruptcies: liquidation and reorganization. The vast majority of people are much better off under a liquidation bankruptcy. People who qualify for a liquidation generally have few or non-exempt assets, have multiple outstanding, delinquent debts, and lack the income to ever be able to catch up on the debts. Asset exemptions vary depending on your country or state, but generally include things like furniture, primary vehicle, cooking ware, and personal or sentimental valuables.
People who qualify for a reorganization bankruptcy typically have a very high income or significant assets and crushing debt. If you think you qualify for a reorganization bankruptcy rather than a liquidation, there is no general purpose guide that you should consult; instead, you should stop reading and consult a bankruptcy specialist or lawyer right away. Be advised that a reorganization bankruptcy can be extremely expensive.
If you think you are a candidate for a liquidation bankruptcy, begin taking account of your debts
There are certain debts and payments that cannot be discharged by bankruptcy. These include student loans, child support or alimony payments, and debt payments related to secured loans (typically auto or home loans). If you believe you may have to file for bankruptcy in the future, you should begin to focus on paying down non-dischargeable debts. Additionally, you may want to calculate whether you have enough debt for a worthwhile bankruptcy. If you only have a few thousand dollars of outstanding debt, there may be other options such as consolidation loans or credit card balance transfers that may allow you to avoid bankruptcy permanently or, at the least, for some time. Under no circumstances, though, should you utilize cash advances on credit cards or take out loans for the express purpose of paying down non-dischargeable debts. If you have done this far in the past it is no problem, but if you do it any time in a six-month period before declaring bankruptcy, many countries consider you to have committed bankruptcy fraud.
How to file for bankruptcy
Once you’re confident you’re a good bankruptcy candidate, all it takes is going to a bankruptcy attorney. Liquidation bankruptcies are standard practice for a number of lawyers and can be done for as little as a few hundred dollars. You can only file bankruptcy once every few years, so it’s important that you make it worthwhile. Don’t file bankruptcy over frivolous or negligible debts, as you will be needlessly damaging your credit score as well as making yourself ineligible for bankruptcy in the ensuing years.
For the vast majority of people, bankruptcy protection is immensely beneficial and will immediately make debts more easily manageable and reduce overall stress levels. It is also possible to “re-affirm” secured loans such as auto loans and mortgages through bankruptcy. Don’t let anybody tell you that you will necessarily lose your house or car in a bankruptcy.
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