Does your financial future look bleak? Don’t give up! I suggest credit counseling from an agency affiliated with the National Foundation for Credit Counseling (the www.nfcc.org website can help you find a local agency). Just talking about your finances and getting guidance on how to budget and manage your debt may be a big help. I also recommend meeting with an experienced bankruptcy attorney who can advise on whether filing for Chapter 7 or Chapter 13 bankruptcy could be an appropriate solution.  

 

Chapter 7 bankruptcies allow debtors to discharge all or part of their debt. Because it “clears to deck,” this type of bankruptcy requires that you pass a “means test” proving that your family income is less than the average in your state. In other words, your situation needs to be dire. While certain items are exempt (which vary by state), your assets must be liquidated to pay off creditors. Any remaining debt is discharged and you are no longer liable for it. Creditors and their collectors can’t call you or try to collect on relieved debt.  

 

Chapter 13 bankruptcies generally put debtors on a three to five year plan to repay all or part of their debts. Creditors can object to the payment amounts, but the judge has the final say. You pay the bankruptcy trustee what is required according to the plan; he, in turn, pays your creditors. After the plan has been completed, any remaining debt is discharged and you are no longer liable.  

 

Steps in the Process: An attorney will provide specific instructions, but here are some basic steps in the process of filing for bankruptcy:  

 

1. Assemble detailed information on your assets, debts, income, and expenses.

 

2.  Complete credit counseling from an approved agency. This only takes a couple of hours and can be done over the phone or internet.

 

3.  Attend a creditor meeting with a court appointed trustee and any creditors who wish to ask you questions. Creditors are given the opportunity to review your payment plan and make objections.

 

4. In a Chapter 7, your assets are liquidated and paid to your creditors. In a Chapter 13, your payment plan is accepted and you begin making payments to a trustee.

 

5. You are required to attend post-bankruptcy credit counseling as a condition of having your debts discharged.

 

What’s Next: Bankruptcy is serious, but it isn't the end of the world. If your options have dwindled, it is definitely worth considering. While there are do-it-yourself bankruptcy options, I wouldn’t suggest going that route. Did I mention hiring an attorney? It’s a smart move when tackling a problem as complex as personal bankruptcy.

 

 

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