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Bankruptcy: Considerations Before Filing

While bankruptcy can be a valuable financial option for some, there are important considerations you must make, as well as alternatives you should weigh, before filing. Here, the legal experts at Alperstein & Diener have provided information to help you determine whether bankruptcy is the right choice.

The weight of substantial debt may make it seem that bankruptcy is your only option, but this is not necessarily the case. While bankruptcy can help erase or shrink large debts, it is not the right choice for everyone, and there are other alternatives that will not have as big of an impact on your credit and reputation as bankruptcy will.

First, it is important to consider is kind of debts you have. While bankruptcy will relieve you of some debt, other forms of debt—like child support payments, alimony, criminal or civil fines, and student loans—will not be cleared. Any secured debts may also be cleared by a bankruptcy filing, but your filing will not prevent a creditor from repossessing the property.

Through Chapter 13 bankruptcy, you may be able to reduce debts owed on property that has a lesser value than the debt, but this depends on when you purchased the property. Property cannot have been purchased within a year to 30 months of bankruptcy, depending on the type of property.

It is often in a creditor’s best interest to work with you to settle your debts outside of bankruptcy, so negotiating with them may be a better alternative than filing. If creditors are particularly abusive or relentless, there are federal and state collection laws that can help defend you from intimidating behavior, and you may be able to take protective legal action.

For some, bankruptcy is not a good option simply because they are not eligible for bankruptcy. To file for Chapter 7 bankruptcy, which can wipe out all your debt, you must not exceed a certain level of income; to file for Chapter 13 bankruptcy, you must not exceed a certain level of debt. For those who are eligible for bankruptcy, it can help freeze any legal action taken against you by a creditor, and slow down foreclosure or repossession. If you have a large amount of property with liens on it, bankruptcy is not advisable, because you will have to pay any unsecured creditors a value equal to the value of your nonexempt assets.

Finally, know that bankruptcy is not the best choice if you have little income or property. Creditors cannot take Social Security, unemployment or disability benefits from you, so if these are your main income and you own very little property, your best option may be to pay your debts in a routine manner.

It is important to weigh your options when filing for bankruptcy, as it can affect your life in many negative ways. For some, however, it can be a way to start fresh. Each case is unique, so it is important to speak with an experience bankruptcy attorney regarding your specific situation. For more information, contact Alperstein & Diener today.