When you’re in a serious financial bind, the thought of filing for bankruptcy may seem extremely appealing. The thought of having some of your debts written off; or of being given more reasonable terms to settle them, can seem like a Godsend. Be warned though, filing for bankruptcy should only ever be a last resort, doing so will have far reaching consequences. You may have trouble getting favorable mortgage rates or credit card offers in the future.
How to File for Bankruptcy
Should you decide to file for bankruptcy though, the first thing you should do is get a good bankruptcy lawyer, if you don’t already know one, you can ask for a referral from you local state bar association. When you meet your lawyer, be sure to have all you financial documents with you. Bring bank statements, paycheck stubs, copies of any mortgages and car loans and any outstanding bills, and anything else that might be relevant.
On your petition for bankruptcy, you should list every debt you owe. It is essential that your information is accurate; giving wrong information can actually land you in jail, depending on the gravity of your infraction. To be safe, just make sure everything you give is correct.
Your lawyer will want you to distinguish between secured debts and unsecured debts, secured debts are those in which your creditors possess a security interest in the assets you have failed to keep up payment for, such as mortgages or car loans. Such assets can be repossessed. Unsecured debts are credit card bills, unpaid utilities or services, and other such bills.
There are certain debts that can never be written off even after filing for bankruptcy, these are child support, delinquent taxes and student loans. If you have earned any income six months prior to your filing, you need to disclose it fully, or you risk getting your petition thrown out.
Types of Bankruptcy
There are two types of bankruptcy: Chapter 7 and Chapter 13. Under a Chapter 7 bankruptcy, your liquid assets will be used to settle what debts can be settled, after which other debts will be discharged. Under a Chapter 13 bankruptcy you will need to submit a plan to settle your remaining debts.
Financial Recovery
After a bankruptcy, it may take a while to get back a good credit score. You’ll need to settle whatever debts were not included in your petition. Should you wish to get a mortgage, your best shot would be to apply for FHA or VA mortgage loans although your mortgage rates will be less than desireable. You will need to pay down payments, and interest rates may not be that good.
Welcome to my site. I'm Larry Knover and I'm a financial adviser. I put up this finance blog to share my thoughts about saving, investing, retirement and finance in general, hoping that someone reading my blog posts can gain insights from them.