When you find yourself in a situation where you can't pay back your debts, you may feel the need to turn to bankruptcy to get you out of your financial problems. However, with there being many forms of bankruptcy, you may be struggling to figure out which one is best for your financial situation. Here are some tips for making the right choice.
Look At Your Debts
Start by examining what kind of debts you are carrying, since it can play a big impact on your bankruptcy filing. It is likely that you have unsecured and secured debts that you're struggling to pay off, and those debts are treated differently depending on the bankruptcy method.
An example of a secured debt is a home or auto loan, which is when you take a loan out to buy a specific item. That item can then be repossessed if you fail to pay back the loan. The most common form of unsecured debts is from credit cards, since the debt is tied to your personal credit score.
Being able to qualify for bankruptcy means that your income is less than your monthly payments. You could then use Chapter 13 or Chapter 7 bankruptcy to help dissolve those debts.
Consider Your Disposable Income
Figure out how much disposable income you have when each month is over, which is what you save after paying for utilities, your mortgage, and food. Since this money is used to pay down your debts, be aware that disposable income may actually play into the method of bankruptcy used.
Chapter 13 bankruptcy requires that you repay the debts, but they are consolidated and paid off over a longer period of time. If your personal disposable income is not enough to cover a proposed repayment plan, you'll need to use Chapter 7 for bankruptcy.
Know Which Payments Can't Be Discharged
Some ongoing payments you make will not be discharged from a bankruptcy. This includes student loans, taxes, child support, and alimony. If these payments are what is causing you to look into bankruptcy, know that bankruptcy may not be the answer to your problems. While bankruptcy can help reduce secured and unsecured debts so that you can pay off the ones that cannot be discharged, know that some debts will remain after using bankruptcy.
Once you know these three things, speak with a bankruptcy attorney about your options for getting rid of debts.
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