How to Handle Bankruptcy

Making the Decision to File Bankruptcy

Making the choice to file for bankruptcy can be one of the most difficult decisions for anyone.  During tough times, some may believe that bankruptcy is the only option.  Before filing for bankruptcy, make sure that you have explored all of your options first so that you can make the decision knowing that you have tried everything else.

Do you have a budget?
Many people may quickly answer “yes” to this question, but it is important to actually have a “working” budget that is in writing.  Write down every expense that you have for a month.  Also take any yearly or quarterly expenses and divide them to get a one month amount and add those to the list.  Go through your last month’s bank statement along with your credit card purchases and make sure every expense is noted.  Compare this to your income and make tough decisions on what should change.  This should include stopping all charges on credit cards until you have paid them completely.

Are you using one credit card to pay another?
One of the first symptoms of being in financial trouble is the need to borrow money to pay off a credit card.  Instead, consider calling each of your credit card rewards providers and try to renegotiate your payment plan.  Some card providers will not negotiate until you are 30 days or more past due, but you should at least make an attempt.  Some card providers will lower your interest or your monthly payment.  Beware that in some cases the card provider may “freeze” your card so that you cannot make additional charges.

Mortgage challenges
While it may seem that your mortgage company is not interested in helping you, it is actually in the mortgage provider’s best interest to give you some assistance.  If you are experiencing financial difficulties such as lost wages, unexpected expenses, or health issues you can contact your mortgage company and ask to be considered for loan restructuring or other options.  You will need to provide a copy of your expenses and proof of income along with a hardship statement.  Be patient because mortgage lenders can take as much as six months to make a decision.  In the meantime, do not ignore your mortgage.  Do the best you can and try to make the payments.

If there is no other choice…
Once you have determined that you must file for bankruptcy, most people have the option to choose one of two types.  Chapter 13 is a form of bankruptcy that allows you to keep most of your assets including your car and home, but you will be held to a strict repayment plan that is managed by the court.  Chapter 7 is a more complete form of bankruptcy where almost all of your assets are liquidated or sold in order to pay off as much of your debt as possible.  In both cases, your credit report will be severely impacted for as much as 10 years in the future.

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