Filing bankruptcy is a serious matter, and something I would never recommend to anyone until every other possibility is exhausted. It will affect you for at least seven years, if not longer since it does affect your credit report and credit score. It can limit the your options when it comes time to purchase a home. It is also an emotionally draining process. If you are considering bankruptcy you should carefully consider all of your options before you do this.
First you need to make sure that you have considered all other possible options. You should start by writing down a set budget. If you are considering bankruptcy you should cut out all unnecessary expenses. Then you should put your expenses in order of what is most important. You need to cover your food, home, and utilities. Then prioritize down the list. You then need to figure out which bills you cannot pay and total them. You may find that you are not as bad off as you thought you were.
If the amount is less than a thousand dollars a month you can turn the situation around. Even if it is more you can still turn the situation around. You need to look at the largest debts and consider what you can do to reduce them. You may want to sell your cars and buy a cheaper car, this will reduce the payment. You may also consider selling your boat if you have one. If your house payment is more than twenty five percent of your income, then you should consider selling it as well. Additionally you can put your student loans on economic hardship deferment until you get some of your payments under control.
Once you have considered ways to reduce the debts you should look at ways you can increase your income. You may work overtime, freelance or take on a second job. You can also sell items online or have a yard sale and apply that money to debt. This may get the loan amounts and your payments much lower. It is important to stay focused.
You should also set up a debt payment plan. This plan helps you to focus your efforts to pay down your debts quickly. You can set up the plan in order of smallest debt to largest, which will help you to free up money for the snowball much quicker. Another option is to order the debts from highest interest rates from highest to lowest, which will save you money on interest.
It will take a lot of self-discipline, but generally most people can avoid bankruptcy with this method. However, if you still can't get any traction after you have wholeheartedly implemented these steps you may consider it. This should be your last resort, however. Remember that student loans will not be discharged during bankruptcy.
Under the new bankruptcy laws, you have to actually prove that you are bankrupt - this, believe it or not, was not actually a requirement under the old law. If you decide to file bankruptcy, you should hire an attorney to walk you through the process. Before you file, you have to go through counseling.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 launched a new era: With limited exceptions, people who plan to file for bankruptcy protection must get credit counseling from a government-approved organization within 180 days before they file. They also must complete a debtor education course to have their debts discharged.
The Department of Justice's U.S. Trustee Program approves organizations to provide the mandatory credit counseling and debtor education. Only the counselors and educators that appear on the U.S. Trustee Program's lists can advertise that they are, indeed, approved to provide the required counseling and debtor education. By law, the U.S. Trustee Program does not operate in Alabama and North Carolina; in these states, court officials called Bankruptcy Administrators approve pre-bankruptcy credit counseling organizations and pre-discharge debtor education course providers.
As a rule, pre-bankruptcy credit counseling and pre-discharge debtor education may not be provided at the same time. Credit counseling must take place before you file for bankruptcy; debtor education must take place after you file.
In general, you must file a certificate of credit counseling completion when you file for bankruptcy, and evidence of completion of debtor education after you file for bankruptcy - but before your debts are discharged. Only credit counseling organizations and debtor education course providers that have been approved by the U.S. Trustee Program may issue these certificates. To protect against fraud, the certificates are produced through a central automated system and are numbered.
A pre-bankruptcy counseling session with an approved credit counseling organization should include an evaluation of your personal financial situation, a discussion of alternatives to bankruptcy, and a personal budget plan. A typical counseling session should last about 60 to 90 minutes, and can take place in person, on the phone, or online. The counseling organization is required to provide the counseling free of charge for those consumers who cannot afford to pay. If you cannot afford to pay a fee for credit counseling, you should request a fee waiver from the counseling organization before the session begins. Otherwise, you may be charged a fee for the counseling, which will generally be about $50, depending on where you live, the types of services you receive, and other factors. The counseling organization is required to discuss any fees with you before starting the counseling session.
Once you have completed the required counseling, you must get a certificate as proof. Check the U.S. Trustee's website to be sure that you receive the certificate from a counseling organization that is approved in the judicial district where you are filing bankruptcy. Credit counseling organizations may not charge an extra fee for the certificate.
After counseling, you can file for relief under Chapter 7 (liquidation of all assets and liabilities) or Chapter 13 (re-organization of debt). Obviously, the pros are that you can get rid of your debt. The cons are that your credit will be ruined for at least 7 years, and you may never fully recover.
My suggestion is to do whatever you can to stay out of bankruptcy, but if you get overwhelmed, you can certainly file.