Considerations in Filing for Bankruptcy

Last year, 2009 was the seventh worse year for personal bankruptcy cases. A total of 1.4 million people filed for bankruptcy. It is obvious that most these cases were due in some way to the state of the economy. People who lost their jobs, earned less through shorter working hours or had the terms of their mortgages adjusted till they could not afford it finally succumbed to mounting debts and sought bankruptcy protection.

But how do you decide whether you should file for bankruptcy? Essentially, bankruptcy is a provision in the law that you are entitled to and it is meant to give you a fresh start when you have exhausted all means of paying up your bills and have no means to earn more income or restructure your debts. It should not be used as a bail-out when you have another recourse to settle your debts.

Here are the things you should consider about seeking bankruptcy protection:

You have to undergo two compulsory credit counseling classes. One is scheduled before your bankruptcy proceedings take place and the other is after your debts have been resolved. Among the things brought to light in the pre-bankruptcy credit counseling is the cost involved in going ahead with the bankruptcy application and all it entails. Experience has shown that approximately half of those who complete the pre-bankruptcy credit counseling go on to engage a lawyer to do their filing for them while the other half try to pay off their debts without resorting to bankruptcy.

Besides the pre-bankruptcy counseling class, there is the financial management course which is set after your debts are resolved. This course is a must before the judge will officially grant you a discharge from your debts. The cost for the courses is $150 but there is a provision in the law for this fee to be waived if you genuinely cannot afford it.

Another consideration of filing for bankruptcy is what type of bankruptcy to file. Essentially for individuals, there are 2 types, distinguished by the relevant chapters in the Bankruptcy Code, namely Chapter 7 and Chapter 13. A Chapter 7 bankruptcy is for you if you earn less than a fixed average income for a typical person with a family the size of yours in your state. In such a case, a state-appointed trustee will be appointed to sell off your assets and distribute the proceeds to your creditors. The remainder of your debts will be discharged. On the other hand, a Chapter 13 bankruptcy is a restructuring of your unsecured debts to be paid off between 3 to 5 years.

A further consideration would be the filing fees involved. A Chapter 7 bankruptcy filing would cost $299 whereas a Chapter 13 one costs $274 payable either as a lump sum or in installments. On top of that, there are the legal fees that vary among lawyers. It is not advisable to file for bankruptcy without the services of a lawyer.