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Top 10 Questions To Ask Before Declaring Bankruptcy

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Declaring bankruptcy is a life changing decision. In some cases, bankruptcy is the best option. In other cases, there may be alternatives to consider. Before declaring bankruptcy, you should make sure you have carefully considered whether taking this step is right for you. Read on for the top 10 questions to ask before declaring personal bankruptcy:

  1. How much do I really owe? Some people may believe that the situation is worse than it is. Add up all of your debts and compare that to your budget to see if the debt is really as insurmountable as you think.
  2. Will my creditors negotiate with me? Creditors know that if you declare bankruptcy, they are likely to collect nothing - or almost nothing - from you. As a result, many creditors will be willing to lower the amount you owe or accept less than the full amount due in a settlement. Consider asking this question of your lenders before you opt to declare bankruptcy.
  3. Can I consolidate debt or explore other options? Consolidating debt involves rolling all of your existing debt into one new loan. You could potentially take out a new loan to do this, or even take out a second mortgage or home equity line of credit on your house to pay off existing debt. This can lower your monthly payments in some cases and help avoid bankruptcy.
  4. What kind of debt do I have? Student loan debt and tax debt is not usually dischargeable in bankruptcy, unless you can show "undue burden." This means you would have to show that paying back your debt will cause you to be unable to live with even a minimal standard of living for a long or indefinite period of time.
  5. Are my financial problems temporary? If you have just lost your job and you can't pay, but you believe you may be able to get out of the financial bind in a month or two, then bankruptcy is usually not the best option. Bankruptcy can cause an adverse impact on your credit for years to come and is not a good solution to temporary financial problems.
  6. Do I have any other options? If you can get credit counseling or get a second job in order to avoid bankruptcy, then you may want to consider that as a less drastic option
  7. Am I eligible for a Chapter 7 bankruptcy? Under the bankruptcy laws, you have to pass a means test to declare Chapter 7 bankruptcy. This means you cannot do so unless you make below the median income in your state or unless your disposable income would be so low after all your debt payments that you couldn't maintain a reasonable standard of living. Otherwise, you will be required to declare Chapter 13 bankruptcy - which means you will be put on a payment plan and have to pay back some of your debt anyway.
  8. How many assets do I have? Assets refer to the items you own that have value. Your home, your furniture, your car, your engagement ring, your art collection or anything else you own that has value is considered an asset. When you declare bankruptcy, the court may require you to sell some of those assets in order to pay back money to your creditors.
  9. Am I going to keep my home? You may be able to do so, especially when you file Chapter 13 bankruptcy, under homestead exemption laws in your state. However, your home usually can't be valued above a certain level for it to fall within an exemption and you will have to get current on your mortgage payments.
  10. Am I prepared to work to rebuild my credit? Bankruptcy will stay on your credit report for 10 years. You may have a hard time getting a loan, buying a home, buying a car, getting a cell phone or renting an apartment. You will also have to work hard to repair your credit. Make sure you are prepared to do this before you declare bankruptcy.

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