6 Questions to Ask Before Filing for Bankruptcy

The Associated Press recently released an informative article for those who are considering filing for bankruptcy.  The article shares 6 critical questions people should ask before they decide to commit to file for bankruptcy. 

More and more people are considering filing for Chapter 7 and Chapter 11 bankruptcy due to the struggling economy.  In fact, according to the Associated Press, 880,000 people filed for bankruptcy in the month of October.  Additionally, it is reported that Americans have $900 billion in credit card debt alone. 

Despite overwhelming debt, it is important that people weigh all factors carefully before deciding to file for bankruptcy or bankruptcy protection.

Below are the 6 questions people are encouraged to ask and answer:

1. What types of bankruptcy are there?
By knowing about the different types of bankruptcies, people can decide is bankruptcy is right for them, if they qualify for a specific type of bankruptcy and what conditions surround filing for bankruptcy.

2. Who can apply?
In order to qualify for Chapter 7 bankruptcy, people must pass a means test.   The same is true for establishing a Chapter 13 bankruptcy payment plan.  The means test determines eligibility after close consideration of the person's finances.  If people do not pass the test, they may not be able to successfully file for bankruptcy.

3. How do I start and what are the costs?
People should seek out the right financial advisors and resources before filing for bankruptcy.  Additionally, people must know about the costs involved in filing for bankruptcy to determine if they can afford it.

4. Ask what you can keep?
After filing for bankruptcy, you can lose many assets, but there are some you can keep.  The assets you can lose or keep vary from state to state, so it is important to research this topic carefully before filing.

5. How does the process work?
Bankruptcy, like all legal matters, involves a process.  For example, when filing for Chapter 7 bankruptcy, creditors will receive a stop notice and will have to discontinue their collection efforts.  However, people who file for Chapter 7 bankruptcy may still have to make mortgage payments or payments for other secured debts.   People should be fully aware of the process so they can adhere to it.

6. What are the repercussions?
Filing for bankruptcy should never be thought of as an "easy out".  Bankruptcy involved repercussions.  For instance, a Chapter 7 bankruptcy will stay on a person's credit report for 10 years, which will adversely impact his/her ability to receive credit or loans.   Understanding the repercussions associated with bankruptcy can help people make the right decision.

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