It is a very easy problem to get into: debt. You owe way more then you make and you start to panic. You wonder, can I file for bankruptcy?
You put a few things on your credit card and pay off the balance in a timely fashion. So, the bank raises your credit limit. Things are going fine until one day, you lose your job. Your hours are cut back. You have a baby. For whatever reason, your income drops and now you find yourself putting more and more on credit. You fall behind on payments, interest rates go up and now you are really in a hole.
On top of that, you may not be able to make car payments, mortgage installments and utility bills on time. Then the phone calls start coming. They are debt collectors looking for you to give them money that you just do not have.
If you are considering filing bankruptcy, there are a few things you should know. First of all, not everyone can file. The first thing to look at is your monthly income. This is the average of your income based on the six months leading up to the date you file. You may file if your “current monthly income” is lower than the median monthly income. This is the average income for a family of your size in your state.
If not, there will be an examination of your disposable income. The question is: do you have enough disposable income to pay back at least some of what you owe? This is determined by subtracting all your necessities from your income and seeing how much is actually left. Things to subtract are rent or mortgage payment, car payments and insurance, other insurance premiums such as health and homeowners, food, clothing, and necessary baby items like diapers.
The court wants to see whether you are attempting to cheat creditors or whether you are actually bankrupt. The court will also dismiss and bankruptcy case if you have previously filed in a certain number of years. This number will vary by state but is generally 8 years for a Chapter seven case or 6 years for a previous Chapter 13 case.
As mentioned previously, the court will want to ensure that you are not trying to fraud your creditors. Giving off assets to friends or family to keep them hidden, lying about income and/or debt on credit applications and running up lines of credit on luxury items right before filing when you clearly knew you would be unable to repay. Courts will also delve closely into your records looking for any concealed money or property. This includes concealed assets now as well as in the past, such as stuff you may have tried to keep secret during a previous divorce proceeding.
Filing bankruptcy is not for everyone and will make getting future credit very difficult for 7-10 years. But the good news is that after bankruptcy discharge, you are free from all your debt and the accompanying headaches and stress. You will then be able to focus on saving money and getting back on track.