The first question you ask when it comes to bankruptcy should perhaps be the last.
Making the decision to file for bankruptcy protection is difficult, but all too often we ask whether it’s the right choice before looking at the big picture.
Our finances, no matter how simple we perceive them to be, are like a high-tech sound system: it looks neat when viewing the set-up head on, but look behind the machines and you’ll see a tangle of cords and wires that reveals the true complexity.
Taking a look at your bigger picture will help you decide whether it’s a good idea for you to file bankruptcy. Here are some things to answer first.
Am I Broke, Or Am I Bankrupt? If you’re not currently paying your bills, bankruptcy won’t free up cash to make ends meet. Bankruptcy allows you to reorganize your finances, discharging obligations or restructuring them. Take a look at how bankruptcy will impact your cash flow on a monthly basis.
Can I Pay My Debts? I usually tell people that bankruptcy isn’t necessary if they can pay their debts in full within three (3) years without living on Ramen noodles and water. If you file bankruptcy and go through a Chapter 13, you’ll likely be paying off the debt over the same period of time. In the alternative, having the ability to pay your debts in full over such a short time frame may indicate that you could have trouble qualifying for Chapter 7.
Can I Protect My Property? In Chapter 7 bankruptcy, you get to keep some property but must surrender items that can’t be protected under a variety of laws. If you’re going to lose property in a Chapter 7, you may want to look into Chapter 13 and find out if you qualify.
What’s My Goal? You can wipe out certain types of debts in a bankruptcy case, but others will survive the discharge. Talking with a bankruptcy lawyer about the types of debt you have and how they will be impacted by a bankruptcy discharge is going to help answer this question.
Do I What To Shed The Excess? Maybe you’ve got a car you can’t afford anymore. Perhaps that house has turned into more of a burden than a benefit. Filing bankruptcy may give you the opportunity to return the property and end your obligations to the lender. If that sounds good to you, bankruptcy may be a viable option.
Once you begin digging, you may find other questions to get answered before making your decision on whether to file for bankruptcy. These are usually the ones I use to begin a conversation with my clients, and we find them instructive in guiding our discussions.
If it’s the right decision for you, talk with a bankruptcy lawyer. The cost in time and money for a thorough review of your situation and an analysis of your likely outcome will be well worth it.