If you’ve acquired large, unpayable debts, you’ve likely considered filing for bankruptcy. But there are things you need to know and consider before you jump into filing for bankruptcy.
First, you need to ask yourself what type of bankruptcy you should file for. If you’re an individual with personal or household debts, you have the option of filing for Chapter 7 or Chapter 13 bankruptcy. Chapter 7 involves complete liquidation of unprotected assets in order to pay your creditors. Any asset with your name attached is likely fair game, however, some assets can and are protected. For example, most retirement savings accounts and pension plans are protected, such as IRAs and your 401(k). You may even be able to keep your home and vehicle. Consult a Los Angeles bankruptcy law attorney before filing so you can make sure to legally protect whatever you can under the law. The rest of your assets will be sold off and paid out to your creditors. Chapter 13 bankruptcy (the business equivalent is Chapter 11) involves restructuring your debt and finances so you can pay your creditors while still holding onto your assets. Generally you are given a few years to pay off your debts under Chapter 13 protection.
Realize that bankruptcy will not clear all your debts. Most debts will be wiped away, or discharged, if you file for Chapter 7, but some debts and financial obligations will remain. For example, income taxes and most student loans are not forgiven after bankruptcy and you will have to repay them no matter what. You will still have financial obligations such as child support and alimony.
Your credit will be negatively affected. In your credit report, bankruptcy is kept on file for at least 10 years. This will severely affect your ability to apply for loans in the future. However, you can rebuild credit over time.
The last thing you should know before filing for bankruptcy is that yes, you can file for bankruptcy yourself, but it’s highly recommended you consult a bankruptcy lawyer so you can fully understand your rights, responsibilities, and perhaps protect assets you may not have known you could keep if you had filed on your own. The modest cost of a lawyer could save you thousands or more in the long term.