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What you should know before you file for bankruptcy

If you have bills that are piling up because you are out of work, it can be a good idea to file for bankruptcy to manage your financial situation. Bankruptcy refers to a legal process that can help you if you are failing to pay bills. It can assist you to get rid of debt so that you can have a fresh start. When you file for bankruptcy, it can stop foreclosure or even legal actions against you. 

It can also stop your creditors from demanding their payments. This gives you breathing space so that you can focus on other important things. However, there are a couple of things you need to be aware of before you file bankruptcy. This post discusses what you should know before you file for bankruptcy. 

Types of bankruptcy

If you decide to file bankruptcy, you need to figure out which type is the right one for you. Depending on your situation, there is Chapter 7 and Chapter 13 bankruptcy. Remember that most bankruptcies for individuals can be filed under these chapters of the Bankruptcy Code. But it can be hard to select the type of bankruptcy you should file, so it makes sense to get a lawyer to assist you to make the right decision.

When it comes to Chapter 7 bankruptcy which is also called liquidation, it is usually easier to file and tends to take less time to do it. Many people like to file under Chapter 7 as can get rid of most of your unsecured debts, such as medical bills and credit cards. This means you don’t need to repay the money you owe. However, ta trustee can sell some of your property to repay your creditors. Therefore, Chapter 7 bankruptcy can be suitable for those with little or no assets.

You need to meet some requirements to be eligible for a Chapter 7 bankruptcy. There is a formula called the means test that prevents people who receive high wages from filing Chapter 7 bankruptcy. This formula determines if you are in the low-income category to file Chapter 7 bankruptcy.

People in the higher-income category can file under Chapter 13 bankruptcy. Chapter 13 is ideal for individuals who receive regular wages and they have adequate money to pay off their debts using a repayment plan. 

The good thing is that you can keep all your assets in a Chapter 13 bankruptcy, though you need to repay your creditors the value of what is called non-exempt property like your boat or car. In most cases, Chapter 13 bankruptcy can be a good choice if you are behind on car or house repayments and desire to catch up on missed repayments to keep the property.  

Check other options before you decide to file for bankruptcy

Before you use a Raleigh Bankruptcy Chapter 7 lawyer to file for bankruptcy, you can look out for other less drastic options. For example, one of the good options is credit counseling. Regardless of whether or not you want to file for bankruptcy, you need to use an approved credit counseling agency for credit counseling.

There is also the CARES Act that doesn’t allow federal foreclosures and eviction activities. These government initiatives can give you enough breathing space until you can manage your financial situation. Therefore, you should check these initiatives before you decide to file for bankruptcy.

Alternatively, you can use your 401(k) plan to take a loan rather than filing for bankruptcy. In most cases, you can access at least half of your investment. You can use the funds to pay out your living expenses and other expenses. 

Don’t spend a lot of your retirement funds

It can be tempting to go on a spending spree, especially when you decide to file for bankruptcy. This means you should avoid creating new debts just before filing for bankruptcy. Keep in mind that some of your creditors can refuse your request for bankruptcy because they may consider it bankruptcy fraud. 

Also, the bankruptcy trustee can attempt to recover property or money by putting some transfers you make during 90 days before you file for bankruptcy. And, the trustee may also reverse security interests as well as other pre-filing transfers that were incorrectly done. For instance, you cannot transfer your assets to your family members before you file for bankruptcy because this can be regarded to be a fraudulent conveyance.

You should also avoid using all the money in your retirement account before you file for bankruptcy. Bankruptcy usually protects most retirement funds. The truth is that you need to think carefully before you utilize the retirement funds to pay for expenses. After all, filing for bankruptcy can use up much of your debt.

Bankruptcy cannot deal with all your debts

There is a good chance that bankruptcy may not take out all your debts. For instance, certain types of debt like taxes and child support cannot be eliminated in bankruptcy. Student loans can also be hard to discharge in bankruptcy unless there is evidence of undue hardship. 

If you want to eliminate debt in bankruptcy, it usually depends on whether you have secured or unsecured debt. Secured debt refers to a debt that has collateral property. Good examples of secured debts are a car loan and a mortgage.

In most cases, if you fail to repay a secured loan, then your creditor can decide to take the collateral which can be your car or home. When it comes to an unsecured loan, there is no asset tied to your debt that a creditor can take once you fail to repay the loan. Examples of an unsecured loan include medical bills, certain personal loans, and credit card balances. 

In bankruptcy, you can have the right to collateral if you are a secured creditor. Therefore, you can still retain the asset connected to the loan. However, unsecured debt can be eliminated in bankruptcy because there is no collateral that your creditor can hold on to and repossess. For a smooth bankruptcy process, you need to secure an experienced bankruptcy attorney to help you file for bankruptcy.

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