Bankruptcy

Although I am not a lawyer, I would consult with the person as a long-time financial adviser. I would provide guidance and then direct the person to a bankruptcy attorney. I would ask questions in the context of the past, present, and future.

Past: Why is the person struggling? Was the condition initially caused by the person’s activities, or did something happen that was out of their control (like an unexpected medical issue)? Is their situation new or are their financial woes chronic? Did the person ever have a financial cushion, and if so, was it depleted?

Present: Is the person’s monthly income exceeding their expenses? If not, how frequently is a shortfall created? Were deficits reversed in future months, or did deeper deficits result? 

Future: What are the chances that the person’s deficits will be eliminated, resulting in a positive cash flow? Is a future windfall anticipated, such as an inheritance or a higher-paying job? Will expenses decline well below income due to, for example, a loan payoff or release from a responsibility?

In the end, my line of questioning centers on the following:

1. Did the person create the problem? If the cause was out of their control, their creditors may be more empathetic in finding a solution without bankruptcy. 
2. Is the person growing deeper in debt? If so, their condition will only worsen, with bankruptcy inevitable. 
3. Is there a legitimate chance that their condition will improve? Will their problem go away, given enough time? If so, when will the change occur? Creditors will view Improvement in the near future more favorably than in the distant future, where unforeseen circumstances may appear.

Although additional questions may arise, the consultation will better prepare the person to speak to a bankruptcy attorney.

People should know that bankruptcy is a tool. It is not an admission of failure or guilt. Bankruptcy allows people and businesses to restructure their finances to continue participating in the economy. That’s the ultimate goal of Congress — to keep people and businesses operating to their fullest.  

Although there is short-term pain when you file bankruptcy, there is long-term gain from the benefits. Many individuals receive credit immediately upon filing bankruptcy, and within two years, you can qualify for a federally backed mortgage.  

Bankruptcy is not a financial death sentence and actually sends the message to lenders that you are taking steps to be in control of your finances and are a worthy credit risk.

First and foremost, people should talk to a lawyer. People should never consider debt settlement or debt consolidation companies. These companies are not working in the person’s best interests.  These companies promise to improve your credit and negotiate payoffs with creditors, all while taking an upfront fee and charging a monthly fee for their “services.”  

These are empty promises and make a bad situation worse. It is tempting for people to contact these companies because everyone wants to “do the right thing” and pay their bills. However, people should avoid paying these companies and instead contact a lawyer immediately.  

Lawyers will never take a fee unless and until they provide bankruptcy services. The best thing a person can do is talk to a lawyer, especially if that lawyer is a member of the National Association of Consumer Advocates.

Unfortunately, the bankruptcy code is lengthy and complex. It can be overwhelming for individuals to file pro se, or without a lawyer. The bankruptcy code has exemptions and protections that people and businesses may miss without a trained eye.  

However, the bankruptcy court system is designed to be a court of equity, meaning everyone is trying to “do the right thing.” Pro se filers, especially those with few assets (mainly those who pay rent instead of own their home and who don’t have expensive personal items), can successfully file. Even people with few assets can benefit from talking to a lawyer before filing.

The largest benefit comes from the initial consultation. Ask a lawyer for advice if you think bankruptcy may be an option. You will get to tell your story and have a sympathetic ear listen to you. Your lawyer will confirm that you are not alone.  

I promise you will feel better when you talk to a lawyer and don’t have to keep wondering whether bankruptcy could work. You will leave with a plan and take control of your financial future!

There are many things that a person should know before filing, especially information related to assets, including real estate, and the effect filing a bankruptcy could have on them.

The other thing to know is the effect bankruptcy will have on a person’s credit report. For example, a bankruptcy filing stays on a credit report for 10 years in Illinois. It does not mean the person cannot get credit, but it will take some time.

People need to know the different types of bankruptcies available to them, what each means, and why you would choose one over the other. Sometimes, people may qualify for one type of bankruptcy but not the other. It all depends on the person’s financial situation.

People should explore the possibility of settling the matter with the creditor. I have also suggested that clients see if they can get a personal loan from a family member and pay the family member back over time.

It all depends on how much debt there is and whether it is worth filing a bankruptcy, especially over a small amount of debt. People can also talk with credit counseling companies for more information.

I recommend that people consult with and hire an attorney to help them through the bankruptcy process. It is not easy as there are a lot of bankruptcy rules to follow.

I suggest they speak with an attorney for advice on how to proceed regarding their finances. There are financial consultants who may be able to help, but unless they are attorneys, they cannot give legal advice.

The bankruptcy process requires full and accurate public disclosure of your financial life. Most of the work of filing bankruptcy for individuals or small businesses is putting together all of the information that must be disclosed in the bankruptcy schedules.

That includes detailed lists of everything you own, everyone to whom you owe money, your income and expenses, your satisfaction of the means test for eligibility for a discharge, a list of the property that you claim as exempt, disclosure of certain kinds of past transactions, and much more.

For more complicated reorganization cases, it includes developing a feasible plan for paying creditors and moving forward.

In return for that disclosure, the bankruptcy code offers a discharge of debts and a fresh start to those who meet the requirements.

It depends on your financial situation. If you are able to pay your debts over time, you may be able to develop a plan to get out of debt on your own, negotiate a payment plan with your creditors, or consolidate your debts at a lower interest rate.

If you are not able to pay your debts, you may be able to work with a credit counselor to develop a payment plan that you can afford and get a release from your creditors of the unpaid balance after satisfying your plan.

Even in these situations, bankruptcy often serves as the incentive for creditors to negotiate a resolution with you. Creditors who do not make reasonable accommodations may face having their debts discharged in bankruptcy.

But I have to add a word of caution here. The government does not license or regulate debt counselors. There are many outright thieves who are operating as debt counselors who will steal the money you thought would be paid to your creditors under a payment plan or take upfront fees with the promise of getting reductions and disappear with your money.

So you need to be very careful and only deal with honest counselors. Don’t believe credit counselors who make promises that seem too good to be true. An honest credit counselor will not require large upfront payments, will thoroughly document the agreements with your creditors, and will explain and document those agreements.

Business entities are required to be represented by a licensed attorney. Individuals can represent themselves “pro se,” but should only do so if they are willing to spend the time learning the law.

Complex bankruptcy cases require an experienced lawyer. Simple consumer bankruptcy cases can be handled pro se since most of the work involves putting together the schedules, but it’s important that you spend the time making sure the schedules are filled out properly.

There is an organization called Upsolve.org that provides assistance for qualified individuals to put together their schedules for pro se filing. I have not been involved with their services, but having someone to help with the process would be a great benefit for someone handling their own bankruptcy case for the first time.

You have to face your situation and be willing to change your lifestyle. Ignoring your financial problems only makes them worse. Start by making a detailed list of what you owe, listing each creditor’s name and address, the amount you owe, the interest rate, and the legal status of the debt. Organization is the first step.

Bankruptcy will not be able to help someone who continues to spend more than they earn. You have to live within your means. Bankruptcy can help you address your past mistakes. But you have to develop a plan and a good way to track your finances so that you do not fall back into the same behavior that led to your financial problems.

Your goal is to get out of debt, to pay your credit card balances on time in full every month, or not use credit cards, and to start saving and investing for your future. Bankruptcy can help you put your past mistakes behind you, but you need to change your behavior or you will likely be back in the same position in no time.

Bankruptcy may be able to help put your financial house in order, but there is no substitute for learning to live within your means and tracking and controlling your spending. Quick fixes, get-rich-quick schemes, gambling, and ignoring your mail and phone calls will not solve your problems.

Facing the situation, taking action to address the situation, and developing a long-term plan to save money are the only ways to improve your financial life.

When someone is struggling financially to the point that bankruptcy may be their best solution, I suggest professional help, either from a Certified Financial Planner (CFP) or a bankruptcy lawyer. Granted, these people will require compensation for their services, which will be difficult for someone with not many resources; however, it is best to have an informed opinion when facing bankruptcy.

Cut out all unnecessary spending that you can and do not incur any more debt, especially credit card debt. If you’re on the verge of bankruptcy, you can’t afford any luxuries, so cut out the entertainment and buy the most basic foods.

Start paying down loans beginning with whatever has the highest interest rate. Never take a deal to settle a debt for less than the full value unless it is in writing, especially if an account has gone to collections. Debt collectors are not always honest. If you take a verbal deal, you may find out that there was no deal and that you’re in even worse shape.

If you end up in bankruptcy, it will make life much more difficult as far as career options and future borrowing. There is no way out of a financial black hole that is not going to involve some pain, so the key is to rein in spending and start paying it down. This could take years.

You can file for bankruptcy. File under Chapter 7, which offers relief, but avoid Chapter 13, which doesn’t work for most people. In Chapter 13, you only get relief after making payments for at least three years, and many people aren’t able to complete the plan payments. 

Some people do successfully use Chapter 13 to catch up on missed mortgage payments, but if you’re not in default on your mortgage and you’re eligible for Chapter 7, Chapter 7 is usually a quicker path to relief. 

When you file for bankruptcy, creditors can no longer call and harass you for payment, take you to court, or garnish your wages. There are some exceptions, such as child support or alimony. 

Bankruptcy also pauses foreclosure and repossession actions and gives you more options to keep property that might otherwise be foreclosed or repossessed. 

Under Chapter 7, you agree to give up certain so-called “non-exempt” assets in exchange for a prompt discharge of most debts. Most people who file for bankruptcy do not have any non-exempt assets. 

For example, your household furnishings, a low-value car, or computer — you can usually keep these things and still have your debt discharged. 

It’s a bit more complicated when secured creditors like your mortgage lender or auto lender are involved. You may be able to keep your home if you aren’t in default or if you are able to catch up on payments.

Bankruptcy can provide some breathing room to make up missed payments over time, and you can usually keep your car if you keep making payments. If you’ve missed payments, you may have other options, such as making a lump-sum payment for the value of the vehicle rather than the entire loan balance. 

Exactly what happens depends on what state you’re in. Bankruptcy is a federal system but what property you can keep varies from state to state. What assets you have, how much they are worth, and what lenders are involved all play a role, so you should discuss specifics with an attorney.

If you don’t have any non-exempt assets or wages that can be garnished, you may not need to file for bankruptcy to get protection, but creditors will still be able to harass you for payment in that case. 

If third-party debt collectors are harassing you and you can’t pay, you can tell them you will not pay and to stop calling or you will report them for a violation of the Fair Debt Collection Practices Act. 

If you receive a letter in the mail suing you for a debt, you can show up to the court proceeding and ask for proof that they own the debt and are entitled to payment. Often, they will not have it.  

Also be aware that there’s a statute of limitations in every state for enforcing debt. In New York, for example, if the debt is over three years old, they can’t sue you for it. But they might still attempt to collect, so be aware that you don’t have to pay it. 

Many debtors don’t have any assets creditors can take anyway, although your wages may be garnished if a creditor gets a judgment against you. 

Watch out for debt consolidation scams. Programs offering you relief if you consolidate your debt almost never work and are often scams. It’s much better to seek relief in the bankruptcy system. 

People are sometimes worried about the effect bankruptcy has on their credit score, and while it’s true a bankruptcy filing hurts your credit, many people who need bankruptcy relief already have very low credit scores and filing for bankruptcy can be a path to restoring that credit more quickly. 

Other times people don’t want to file for bankruptcy because they are ashamed. You don’t have to be ashamed if you can’t pay your debts. 

It’s not fair that Americans have to take on debt just to make ends meet. It’s not fair that debt is the only way many of us can access things like a car to get to work and get the kids to school, or a basic college education sufficient to earn a living wage. It’s not a moral failing to be unable to pay your debts.

Many people use bankruptcy to find relief from both personal and business debt. If you took on the business debt personally, it is just part of your personal Chapter 7 filing. You can also use Chapter 7 to liquidate a business (that requires a separate filing for the business). 

Be careful though if you have a valuable business you want to keep and you are seeking personal bankruptcy relief. The business may be considered a valuable asset, so you should talk to a lawyer before you file to ensure you can keep the business if you file. 

Subchapter V can help a small business negotiate with its creditors and survive. If you have a large business, Chapter 11 may be better, but that process is rather complicated and expensive.

Bankruptcy is most useful if you’ve had to take on debt to get through some emergency or a difficult time, but your income would be enough to make ends meet if you didn’t have to pay that debt.  

For example, if you lost a job and took on a lot of debt while looking for new work, but now you’ve gotten a new job and just need to get rid of that debt in order to make ends meet now. Or perhaps you experienced a medical emergency but the course of treatment is complete. Others need relief in the wake of a divorce. 

You don’t want to file in the middle of an emergency because you can only get a bankruptcy discharge once every eight years. Wait until the emergency has passed. 

If your income simply is not enough to meet your needs, bankruptcy cannot solve that problem. However, in such a case you likely need debt to survive, and you can use bankruptcy to get a discharge of your debt once every eight years.

Filing for bankruptcy is a complicated legal process that can help an individual in financial distress but also comes with consequences. 

Many may not know that there are two forms of bankruptcy, and the choice may not be up to the individual. The abuse of the bankruptcy laws led to a change in 2005 with the Bankruptcy Abuse Prevention and Consumer Protection Act. The two forms of bankruptcy are debt reorganization (Chapter 13) and Liquidation (Chapter 7).  

Before 2005, you could choose to go right to Chapter 7, which is a forgiveness of most consumer debt. The law change now requires individuals to qualify to file Chapter 7. The main requirement is a means test. If your specific calculation of income is over the state median, you may be required to file Chapter 13.  

With a Chapter 13 bankruptcy, you may have the ability to restructure repayments, lower interest rates, and repay over a longer time period. There may even be an opportunity to eliminate some unsecured debt. The advantage is that you may be able to keep important assets such as homes and automobiles.  

A Chapter 7 bankruptcy is a complete liquidation where you essentially give up all assets in satisfaction of debt, but even Chapter 7 does not eliminate all obligations. Certain debt are not dischargeable. Examples include alimony, child support, student loans, tax payments, and certain legal judgments. 

One other consequence is that the bankruptcy can stay on your credit report for seven to ten years, making it very difficult to secure credit or even a job.

Before filing for bankruptcy there are options you may consider. The first is credit counseling.  This is usually by not-for-profit organizations that can help with everything from budgeting to coaching to negotiating with creditors.  

If your situation isn’t as severe, you may look at debt consolidation before any payments are missed. This method is helpful in getting many payments down to one or a few and, in the case of high-interest credit cards, may lower your financing cost altogether. 

A credit card with a balance transfer special rate, a home equity loan, or a home refinance are common forms of consolidation. 

One other route is a debt management plan or debt settlement plan. While not bankruptcy, these methods often bring credit consequences as well. Here you work with a third party who negotiates with your creditors. Some of these are more gentle in their approach and some more aggressive.

While it is possible for individuals to file for bankruptcy themselves, it is often not advisable.  Even though there may be only one court appearance, bankruptcy is a complex legal process and the laws differ by state.  

An attorney can give proper advice about bankruptcy and tell you which debts are dischargeable and which are not. They also know the details of the eligibility for Chapter 7 (especially the means test), can advise on the appropriate solution, and can save you money or assets. Finally, they can help negotiate with your creditors.

Start by seeking out competent and reputable credit counselors. They would be the first line of defense before bankruptcy and can give good advice. If that is not enough, then contacting an experienced attorney for an initial consultation will provide you with an understanding of the options and consequences. 

Trying to ignore the problem or handle it on your own could result in further harm.

Filing for bankruptcy does not make all of your problems go away. It is expensive to file, and success is not guaranteed. 

While the success rate for Chapter 7 credit card debt can be as high as 99%, it can be as low as 25% for Chapter 13 if the debt involves traffic and parking tickets. As a result, in some cases, you will have paid for a process that doesn’t eliminate any debt. 

In fact, since you don’t make payments during the process, you will have accumulated even more interest charges and you will still have to pay the attorney’s fees because most bankruptcy filings require legal assistance.

Discharged debts might be considered taxable income for federal tax purposes. Often, assets other than homes and cars will have to be sold. Spending will have to be limited, requiring a period of financial discipline.

Several types of debt, such as child support, unpaid taxes, legal judgments, and student loans, won’t be erased even with a successful bankruptcy.

Bankruptcies alone will not solve your underlying problems. Whether it is a job loss, a budgeting/spending problem, or even an unforeseen event out of your control, such as illness or natural disaster, the consequences of those events must also be dealt with. Otherwise, financial problems could reoccur. 

Bankruptcies stay on credit reports for 7 to 10 years. You can recover your credit score following a bankruptcy, but it is a long process. It will also require financial and even lifestyle changes to ensure success. It could take more than a decade to achieve a new normal.

There are many options. Some are specific to the type of debt involved or whether it is individual or business debt.

The four main categories or alternatives are debt consolidation, debt management plans, debt settlement, and credit counseling. Many for-profit and non-profit organizations provide these services, and some impose fees. Be sure to do research to ensure that the organization is reputable.

There are many alternatives to pursue for specific types of debt.

The Federal Government has programs for Student Loan Debt. These programs are often revised, so it is useful to recheck eligibility.

The IRS has an Offer in Compromise program that considers reductions based on financial hardships and the ability to pay. It also has extensions and payment plan options.

States occasionally offer debt relief programs. For example, Pennsylvania is considering one for medical bills.

Some people have used crowdfunding on the internet to pay unusual medical bills or other financial emergencies.

Businesses could negotiate with suppliers or invite investors or partners to delay debt repayment or revitalize performance.

Also, each state has a statute of limitations for the 4 main categories of debt: written, open-ended, oral, and promissory note. Most are less than 10 years. After that time, debt collectors may still contact you, but legal action cannot be taken.  

A simple internet search can provide this information. If the period is close, it might be prudent to wait until that protection begins.

While many alternatives can be explored without professional help, in almost all cases, an attorney will be needed, and in some cases, required when filing for bankruptcy. The process is too complex and too risky to be handled alone.

Depending on the circumstances, there might be some pro bono (free) legal options.

Explore all other options first. Bankruptcy will drastically change your life. So, it might be better to take action and make changes that you can control. 

Often, bankruptcy is seen as a way to keep a home or car. However, with the low success rate, those assets might be at risk anyway. 

Unaffordable mortgages and overwhelming debt are two of the main reasons that bankruptcies are filed. In these cases, there are options that could help you avoid bankruptcy. Sell or rent out your house and move to a place with public transportation, which will allow you to also sell your car.  

Another option could be to rent out a portion of your home, maybe to a student, or even rent out your garage or driveway for parking or storage. A car could also be used to generate more income with a side hustle such as ridesharing or delivery services.

Unfortunately, reasons like medical bills or disabilities do not provide the same options. 

Seek professional advice. Many organizations provide support, but be sure to research the reputation and rating of any organization, as there is the potential for fraud. The first meeting with an attorney can be done before a payment is required.

Also, explore options you can pursue on your own, such as negotiating with a loan officer or credit card company. Look for special programs mentioned above, such as student loan relief, the IRS’s Offer in Compromise, and government programs for medical debt relief or events like mortgage relief after the crisis a decade ago.

Most importantly, take a close look at your financial situation, prepare a budget, and identify areas where you can economize or explore areas where you can earn more. While this can’t solve many of the issues that lead to bankruptcy, tracking finances on a regular basis can detect problems before they become unmanageable. Without a plan, control is out of reach.

Filing for bankruptcy, whether for individuals or businesses, is a significant decision with both short-term and long-term implications.

Short-term impact: Bankruptcy can provide immediate relief by halting creditor collection actions, such as wage garnishments, foreclosure, and constant collection attempts, offering a temporary reprieve from financial stress. Emotionally, it often comes with a sense of failure, shame, and anxiety. Coping with the stigma and emotional toll can be challenging.

Long-term impact: While bankruptcy may discharge certain debts, it can have long-lasting effects on credit scores, making it difficult to secure loans or favorable interest rates. This impact can linger for years. Over time, individuals may rebuild their financial stability, alleviating emotional stress. However, the memory of bankruptcy can persist, affecting self-esteem and confidence.

When facing financial challenges, it’s essential to explore viable alternatives to bankruptcy, each with its own financial and emotional considerations.

In the short term, exploring alternatives allows individuals or businesses to mitigate immediate financial strain without resorting to bankruptcy’s legal processes. Opting for an alternative can preserve self-esteem and reduce the emotional burden associated with bankruptcy.

Additionally, choosing an alternative can help maintain or even improve credit scores, setting the stage for better financial prospects in the long run. By selecting a suitable alternative, individuals can boost their confidence in managing financial difficulties and prevent future hardships.

Here are some alternatives worth considering:

Debt consolidation: Consider consolidating multiple debts into a single, more manageable loan with lower interest rates. This simplifies monthly payments, making it easier to meet financial obligations.

Debt negotiation: Negotiate with creditors to reach more favorable terms, such as lower interest rates or extended repayment plans. This can alleviate immediate financial pressure.

Consumer credit counseling: Seek assistance from credit counseling agencies that can provide expert advice on budgeting and debt management. They may also negotiate with creditors on your behalf.

Financial rehabilitation: Engage in self-guided financial rehabilitation by creating a detailed budget, cutting unnecessary expenses, and allocating more resources toward debt repayment.

Asset protection strategies: Explore strategies to protect valuable assets while addressing debt, such as selling non-essential assets or considering debt settlement.

Emergency fund building: Begin building an emergency fund to cover unexpected expenses, reducing the risk of falling back into debt during future financial challenges.

Financial education: Invest in financial literacy to gain a better understanding of personal finance and make informed decisions about managing debt and expenses.

Keep in mind that the choice of alternative depends on individual circumstances and the nature of the financial challenge. Consulting with a bankruptcy expert, attorney, or credit counselor can help determine the most suitable option.

By carefully evaluating and selecting an alternative to bankruptcy, individuals and businesses can regain financial stability while preserving their emotional well-being. These alternatives offer a path to financial recovery and a brighter financial future.

In most cases, seeking legal counsel is advisable when considering bankruptcy, balancing both financial and emotional needs.

Legal expertise helps debtors navigate complex bankruptcy laws, potentially maximizing asset protection and debt relief. Having a lawyer can also provide peace of mind, reducing anxiety about legal processes and ensuring the right decisions are made.

Looking to the future, legal guidance can lead to a more favorable outcome in bankruptcy, potentially reducing its long-term credit impact. The support of a lawyer can be emotionally reassuring, ensuring a smoother journey through the bankruptcy process.

While some individuals or businesses may attempt bankruptcy without a lawyer, it is generally recommended to seek professional guidance due to the intricate legal requirements and potential financial implications.

If you’re facing financial hardship and contemplating bankruptcy, consider both the immediate and long-term consequences, and follow these below.

Short-term impact:

Financial: Consult with a bankruptcy lawyer to understand your options fully and their immediate effects.

Emotional: Reach out to friends or family to share your feelings and seek emotional assistance.

Long-term impact:

Financial: Develop a post-bankruptcy financial plan, including budgeting and rebuilding credit.

Emotional: Focus on personal growth, self-compassion, and resilience. Seek therapy or counseling to address emotional challenges associated with bankruptcy.

To secure a stable financial future and break the cycle of bankruptcy, it’s also crucial to address the underlying factors that led to financial distress in the first place. Consider both the immediate and long-term consequences, including the disheartening statistics on recurring debt and bankruptcy.

Short-term impact:

Financial: Taking proactive steps to address the root causes of financial distress can provide immediate relief by reducing financial strain.

Emotional: Acknowledging and addressing the factors that led to bankruptcy can alleviate guilt and anxiety, promoting emotional well-being.

Long-term impact:

Financial: Statistics show that a significant number of individuals who file for bankruptcy end up in debt again. To break this cycle, it’s essential to develop strong financial habits and strategies.

Emotional: By actively working to prevent future financial hardships, individuals can regain a sense of control, self-esteem, and hope for a better future.

Lack of financial literacy and awareness often contribute to financial troubles. Many people find themselves in debt due to a lack of knowledge about managing their finances effectively.

Studies indicate that a considerable portion of individuals who go through bankruptcy face financial difficulties again within a few years. This highlights the importance of addressing the root causes and developing sustainable financial habits.

To avoid future financial hardships, consider these steps:
Budgeting: Spend time actively managing your money by creating a realistic budget that aligns with your income and expenses. Tracking your spending is essential to ensure you live within your means.

Financial education: Invest in your financial literacy. Take courses, read books, or attend workshops to gain a better understanding of personal finance, including saving, investing, and debt management.

Money coach: Consider working with a money coach or financial counselor who can provide personalized guidance and teach you the skills necessary to navigate financial challenges successfully.

Emergency fund: Build an emergency fund to cushion against unexpected expenses, reducing the risk of falling back into debt during challenging times.

Debt reduction: Prioritize paying down existing debts to avoid accumulating more interest and fees.

Bankruptcy can undoubtedly offer the debtor relief from creditors, but there are longer-term consequences that should be considered. In particular, the debtor’s ability to reestablish credit or borrow in the future could be negatively affected for several years.

People could explore forms of debt consolidation or debt settlement. Debt consolidation would be to consolidate your debt into one lower-interest loan, which can reduce one’s monthly payment to creditors. 

Meanwhile, a debt settlement would involve the debtor (or a third party) negotiating either a feasible repayment plan or a manageable payment amount with creditors.

In most bankruptcy cases, it would be advisable to hire a lawyer or seek a consultation at least. Filing without legal counsel is advisable only for very simple Chapter 7 bankruptcy cases, where there is substantial documentation that supports why the debtor is eligible for bankruptcy or there is very little risk of subsequent legal action by creditors.

Explore all options before filing for bankruptcy, and do not be afraid to seek guidance from knowledgeable experts, legal or financial. Also, make sure that you are in the right state of mind before deciding on how to move forward. You may eventually regret a hasty decision that you made under high duress.

People should be aware of the long-term consequences this can have on the ability to purchase a house, get lines of credit, secure credit cards, or any other form of lending. Envision yourself 30 years older than you are now — where do you want to be and who do you want to become? Really investigate whether filing for bankruptcy is going to affect this.

Alternatives to consider are downsizing (for example, getting a smaller house), cutting up credit cards to prevent further spending on credit, borrowing money from family and friends (perhaps in exchange for some goods or services that you can offer), or returning purchased items.

I would highly encourage them to seek out local resources that provide financial support. Find a counselor or someone who understands psychologically why a person got into this situation in the first place.

Filing for bankruptcy is an immediate solution, but it does not solve the actual underlying problem, and professional counselors (financial or otherwise) may be able to help determine and solve the root cause of the issue to prevent it from occurring again.

The goal of the bankruptcy system is to allow a financial fresh start, but it has limitations. The chapter that a debtor files for bankruptcy under dictates how the case progresses and, most importantly, what assets the debtor can retain versus what the debtor must use to pay creditors.

But, depending on a debtor’s financial situation, they might not qualify for a particular bankruptcy chapter. Even if the debtor qualifies to file under their preferred chapter, some of the benefits of bankruptcy might not be available.

For example, someone who has filed another bankruptcy case recently might be limited in the ability to utilize bankruptcy’s automatic stay to stop debt collection efforts outside of the bankruptcy system.

Finally, it’s important to realize that the financial fresh start is not all-encompassing. Even a debtor who completes the requirements of the bankruptcy chapter and the case might find that some of the debts are “non-dischargeable,” meaning that they will still be due to the creditor post-bankruptcy.

If the debtor has just one significant debt that they have fallen behind on or are at risk of falling behind on, they should consider contacting the creditor directly to work out different terms or a different schedule for paying back the debt. At the end of the day, creditors want to be paid, and they might be willing to work out different terms (extending the payments, lowering the interest rate, etc.) without going through collections efforts or bankruptcy proceedings.

If the debtor is considering bankruptcy to stop harassment from creditors, the debtor might want to speak with a lawyer about other legal protections, such as the Fair Debt Collection Practices Act. That doesn’t stop a creditor from trying to collect a debt but does set parameters for what type of collection practices are permitted.

For debtors with significant debt, many states offer alternative remedies like an Assignment for the Benefit of Creditors. These remedies require cooperation of creditors and are not as all-encompassing as a bankruptcy case. However, they may be appropriate for some debtors. An attorney familiar with state-law options can advise a client as to whether this type of alternative would be appropriate.

It is also important to consider some other options of which a debtor should be suspect, or at least very careful, in employing. For example, reverse mortgages and debt consolidation are often touted as alternatives to bankruptcy, but each comes with risk. The debtor needs to realize that they are either granting a lien to the creditor (in the case of a reverse mortgage) or taking on a new debt that might include a lien, higher interest rates, or other unfavorable terms (in the case of debt consolidation).

In either case — or in any other system labeled a bankruptcy alternative — the debtor needs to understand what the creditor is getting in return for the money given or the debt consolidated.

Ideally, everyone should consult with a lawyer before filing for bankruptcy. Bankruptcy is a complicated area of the law. If you can’t afford to hire a lawyer for the case, check to see if your local bankruptcy bar has any options.

For example, some districts provide debtors with the opportunity for pro se debtors — those representing themselves — to have a short consultation with a local bankruptcy attorney. The attorney won’t represent a pro se debtor, but will guide them on some of the legal issues that will be faced in bankruptcy.

It is particularly important to speak with an attorney if you have a complicated financial situation, such as owning your own business. It is also important if you have a debt that might not be able to be discharged in bankruptcy. While the list of non-dischargeable debts is long, some of the most common ones include debts involving some type of fraud or wrongdoing or debts involving taxes, student debt, or domestic support obligations (alimony, support, or maintenance payments).

If you have had prior bankruptcy filings, you should speak with an attorney to determine how prior filings might impact the anticipated proceeding.

For individuals filing for bankruptcy, there is a requirement to attend an approved credit counseling session before filing. The debtor’s district governs which credit counseling qualifies for the requirement, and it is important to ensure that a credit counseling session will meet the requirement. Look at the local bankruptcy court’s website to find approved providers in your district.

If bankruptcy is on the horizon, collect your financial documents. You are going to have to provide information to your attorney or to the court that includes details about your assets and your debt, as well as other financial information. Make sure you know who you owe money to and how much you owe.

While bankruptcy might not be the best option for all debtors struggling financially, if it is something that the debtor is considering, speaking with an attorney who understands bankruptcy will help the debtor determine if bankruptcy is the best option for their particular situation.

If you are planning to hire an attorney, determine where you will find the money to hire one. You may need to save for a period of time to pay for the lawyer or ask family or friends who might be willing to help. Bankruptcy lawyers generally receive payment before filing the case.

Having debts that are discharged through the bankruptcy process will have a significant negative impact on your credit report and corresponding credit score for potentially many years. The credit report and score are what potential lenders and service providers use when deciding whether to offer an individual a loan, a service, or engage with any other transaction where ongoing payments from the consumer are to be expected. Although it is understandable that information on a credit report may be used to determine the eligibility and cost of products such as home mortgages and vehicle loans, it may also be consulted when examining your application within many other areas of our financial lives that are not so obvious. This means that completing the bankruptcy process may also result in higher insurance rates, utility connection deposit amounts, rental unit security deposit amounts, or even reduced employment opportunities depending on the specific position or industry.

Depending on the unique individual situations which contributed to the financial circumstances, there are a few potential alternatives to filing for bankruptcy that people should explore. If there are medical bills, first ensure that any applicable health insurance policy has paid to the fullest extent of the benefits available. Second, carefully examine any documentation from your health insurance provider and third, ask questions about any services not fully covered. After exploring your own budget speak to the healthcare provider and attempt to work out a long-term repayment plan where you may be able to make manageable regular payments directly to the provider to keep the account from being labeled as past due or incurring additional finance charges. For credit card debts, once you have revised your monthly spending plan to stop putting new purchases on your accounts you may benefit from connecting with a non-profit consumer credit counseling agency accredited by the National Foundation for Credit Counseling (NFCC). Depending on your situation they may be able to negotiate a more manageable repayment plan with reduced interest rates and the reduction or elimination of fees. This type of agreement may allow individuals to make more efficient progress on the repayment of credit card debt.

Although not required, it is strongly suggested that any individual or household engaged in the bankruptcy process seek professional advice and guidance. All legal processes are filled with details and nuances which can be difficult for any untrained individual to understand. However honest a mistake can be labeled does not mean that it can be reversed or redone with potentially serious consequences if not addressed in time.

My suggestion for anyone considering a bankruptcy filing is to first carefully and honestly consider the situation and choices which have led to the situation. While there are certainly circumstances which can result in financial hardship through no fault of their own such as an emergency or chronic medical situation, past choices and behaviors which are controllable may have additionally contributed. The present debts and bills which are providing the current pressure and stress may only be a symptom or result of other behaviors that must be addressed lest the situation repeat itself sometime in the future – even post bankruptcy – when comparatively fewer options may be available for relief. Meeting with an Accredited Financial Counselor (AFC®) certified through the Association for Financial Counseling and Planning Education (AFCPE) may help you better address your entire financial situation including both internal and external concerns which may be contributing to your financial stress and hardships.

Bankruptcy is popularized as a process where debt is canceled, which is not entirely true. One way to best understand bankruptcy is that it makes everyone take a time out.

Once the process of bankruptcy is declared, it starts a process that all parties have to follow. This can be a double-edged sword because not only do the creditors have to “stop,” but the declarer must also “stop.” After the declaration and the judge grants the process to start, your financial life is really controlled.

I had a client who underwent bankruptcy, and it was a very restrictive process for them to go through. One of the largest impacts is the aftereffects that one’s credit is significantly affected for a period of time. Based on your state, these time gates can differ, so it is best to contact a bankruptcy attorney to learn about these impacts.

Many companies will offer renegotiation processes as an alternative to bankruptcy. This is common for banks and credit cards. However, what I have seen in the past is for smaller balances. Some credit card companies are willing to charge it off, but this has a really nasty tax effect. You should talk to a tax advisor (CPA, EA, or a Tax/Bankruptcy Attorney) to understand fully.

If the process is to end in bankruptcy, then the process will require a lawyer as this is a legal process. The accountant will be a part of the process for the declarer, both during and after the process is complete, as there are some tax issues to deal with.

First and foremost, call your CPA, EA, or Tax Attorney. There are other options that many people don’t think of before moving toward this process. Sometimes, charge-off is a better process because there are additional losses that might be able to take place to offset the income.

Bankruptcy also is a psychological process, and it is essential not to ignore the emotions. If you have a long-term relationship with your tax advisor, they can be really helpful because they will be there before, during, and after. They can help you see the entire process and help you work through it. Finally, if it is determined that you should move toward bankruptcy, your tax advisor might be a good source for who to choose as your lawyer.

Filing for bankruptcy, whether for individuals or businesses, is a significant financial decision that can have lasting consequences. Here are some key points people should know about the bankruptcy process and its future impact:

Types of bankruptcy: There are different types of bankruptcy, but the most common ones are Chapter 7 and Chapter 13 for individuals and Chapter 7 and Chapter 11 for businesses. Chapter 7 involves liquidating assets to repay creditors, while Chapter 13 allows for a repayment plan. Chapter 11 is designed for business reorganization.

Automatic stay: Once bankruptcy is filed, an automatic stay comes into effect, preventing creditors from taking further collection actions. This provides immediate relief from harassment and collection efforts.

Credit score impact: Filing for bankruptcy can significantly impact credit scores, leading to a major decrease in the individual’s or business’s creditworthiness. Bankruptcy will remain on credit reports for several years, making it challenging to obtain loans, credit cards, or favorable interest rates in the future.

Asset liquidation: In Chapter 7 bankruptcy, individuals may have to surrender non-exempt assets for liquidation to pay off debts. Similarly, businesses may have to sell off assets to satisfy creditor claims.

Debt discharge: Bankruptcy can provide debt discharge, where certain debts are forgiven and no longer require repayment. However, not all debts are dischargeable, such as student loans, most tax debts, and certain court judgments.

Repayment plans: In Chapter 13 (for individuals) and Chapter 11 (for businesses), a repayment plan is proposed to creditors to pay off debts over a specified period. These plans require regular payments and adherence to a strict budget.

Public record: Bankruptcy is a matter of public record, which means anyone can access the information. This may affect personal and professional reputation.

Future loan applications: Lenders are likely to view bankruptcy as a red flag, making it harder to secure loans or credit in the future. If approval is granted, interest rates may be significantly higher.

Employment and housing impact: Some employers and landlords may inquire about bankruptcy history during the hiring or rental process, potentially affecting decisions.

Business impact: Bankruptcy can have long-term consequences for businesses, affecting partnerships, vendor relationships, and customer confidence.

Emotional and psychological impact: Filing for bankruptcy can be emotionally distressing for individuals and business owners, leading to stress, anxiety, and a sense of failure.

In summary, while bankruptcy can provide a fresh financial start for those overwhelmed with debt, it comes with substantial and enduring consequences. It’s crucial for individuals and businesses to thoroughly consider all alternatives and seek professional advice before proceeding with bankruptcy filings. Understanding the long-term impact will help them make informed decisions and plan for a more secure financial future.

Before deciding to file for bankruptcy, individuals and businesses should consider exploring various alternatives to address their financial difficulties. Here are some viable options to explore:

Debt negotiation and settlement: Contacting creditors directly to negotiate reduced payoff amounts or setting up affordable payment plans can help avoid bankruptcy. Some creditors may be willing to settle for a lesser amount if they believe it’s the best chance to recover at least some of the debt.

Debt consolidation: Consolidating multiple debts into a single loan with lower interest rates can make repayments more manageable. This option is particularly useful if the individual or business has a stable income and is capable of making regular payments.

Credit counseling: Seeking the assistance of a reputable credit counseling agency can provide valuable insights and strategies for managing debts. They can help create a budget, negotiate with creditors, and provide financial education.

Debt management plans (DMPs): A DMP is an arrangement between the individual or business and their creditors to repay debts over an extended period. A credit counseling agency may help negotiate lower interest rates and monthly payments.

Sell assets and reduce expenses: Selling non-essential assets or cutting back on discretionary spending can generate funds to pay off debts or improve cash flow for businesses.

Negotiate with creditors for hardship plans: Some creditors may be open to creating hardship plans that temporarily lower or suspend payments during times of financial crisis.

Seek legal help for debt defense: In certain cases, legal representation can help defend against aggressive debt collection practices or identify discrepancies in the debt owed.

Improve financial literacy: Educating yourself about personal finance and money management can lead to better financial decision-making and debt avoidance in the future.

Increase income: Seeking additional sources of income, such as part-time jobs or freelance work, can improve the ability to repay debts.

Mediation: Mediation is an alternative dispute resolution process that can help resolve financial issues outside of court, potentially avoiding bankruptcy.

Workout agreements: Some businesses may be able to negotiate workout agreements with creditors, which involve modifying loan terms to make them more manageable.

Forbearance or payment deferral: In certain situations, creditors may offer forbearance or payment deferral options, providing temporary relief from making payments.

Home loan modifications: For individuals facing mortgage payment difficulties, loan modifications may be available to adjust the terms of the mortgage and make payments more affordable.

It’s essential for individuals and businesses to thoroughly assess their financial situation and consult with financial advisors or bankruptcy attorneys to explore these alternatives. Each case is unique, and the most appropriate option will depend on the specific circumstances and goals of the debtor. The goal should be to find the most suitable solution that helps regain financial stability and avoid the severe and long-term consequences of bankruptcy.

Filing for bankruptcy is a legal process that involves complex paperwork, detailed financial disclosures, and adherence to specific laws and regulations. While it is possible for individuals to file for bankruptcy on their own (known as pro se representation), having a lawyer can be highly beneficial and, in many cases, is strongly recommended. Here’s who may benefit from hiring a lawyer when filing for bankruptcy:

Individuals with complicated financial situations: If an individual’s financial situation is straightforward, they may consider filing for bankruptcy without a lawyer. However, if their finances are complex, with multiple assets, debts, and sources of income, an attorney’s guidance can help navigate the intricacies of the bankruptcy process.

Business owners: Business bankruptcies (Chapter 7 or Chapter 11) involve unique challenges and legal considerations. Business owners should seek legal counsel to protect their interests, negotiate with creditors, and understand the implications of bankruptcy on the company’s future.

Ensuring eligibility: A lawyer can assess whether bankruptcy is the right course of action based on the individual’s or business’s financial circumstances. There are eligibility criteria for different bankruptcy chapters, and a lawyer can determine the most suitable option.

Avoiding costly mistakes: The bankruptcy process requires accurate and thorough completion of forms and documentation. Mistakes or omissions can lead to delays, case dismissal, or even allegations of fraud. An attorney can help avoid such errors.

Navigating bankruptcy laws: Bankruptcy laws can be complex and vary from state to state. An experienced lawyer will understand the relevant laws and how they apply to the specific case, ensuring compliance and protecting the client’s rights.

Protecting assets: Lawyers can help clients understand exemptions and protect assets from liquidation in Chapter 7 bankruptcy or negotiate favorable terms for repayment plans in Chapter 13 or Chapter 11 bankruptcy.

Dealing with creditors and trustees: An attorney can handle communications with creditors and the bankruptcy trustee, ensuring that clients are not taken advantage of and that their rights are protected.

Addressing adversary proceedings: In some bankruptcy cases, there may be adversary proceedings, which are separate lawsuits filed within the bankruptcy case. Lawyers can represent clients in these proceedings and defend their interests.

Understanding reaffirmation agreements: In Chapter 7 bankruptcy, creditors may offer reaffirmation agreements to allow debtors to keep certain assets. Lawyers can help clients assess the implications of reaffirmation agreements and make informed decisions.

Navigating Chapter 13 plan confirmation: For individuals filing under Chapter 13, a lawyer can help create a feasible repayment plan and represent them during the confirmation hearing.

Guidance on post-bankruptcy matters: A lawyer can provide advice on rebuilding credit, dealing with creditors after bankruptcy, and understanding the long-term impact of the bankruptcy discharge.

Ultimately, having a knowledgeable and experienced bankruptcy lawyer can significantly increase the likelihood of a successful bankruptcy filing and ensure that the individual or business takes full advantage of the available legal protections and benefits.

As far as handling bankruptcy without guidance, there are certain circumstances where individuals, families, or businesses may consider handling bankruptcy without professional guidance (pro se representation). However, it’s essential to understand that filing for bankruptcy without an attorney is a significant responsibility and carries certain risks.

Here are some situations where individuals or businesses might attempt to handle bankruptcy on their own:

Simple Chapter 7 bankruptcy: If an individual or business has a straightforward financial situation with minimal assets, limited debts, and a clear eligibility for Chapter 7 bankruptcy, they might consider filing without an attorney. Simple cases with little risk of asset liquidation or creditor challenges may be manageable without professional guidance.

No assets or low income: In cases where an individual has no significant assets or a very low income and their debts are primarily dischargeable, they might be able to navigate Chapter 7 bankruptcy with minimal complexities.

Familiarity with legal procedures: Some individuals or business owners with a legal background or experience in court procedures might feel more comfortable handling bankruptcy paperwork and processes on their own.

Limited financial means: In cases where the individual or business genuinely cannot afford the costs of hiring an attorney and the financial situation is not too complex, filing pro se might be the only viable option.

Chapter 13 repayment plans: Some individuals may choose to represent themselves in Chapter 13 bankruptcy if they are confident in their ability to create and propose a feasible repayment plan.

Extensive research and preparation: If an individual or business is willing to invest significant time and effort in thoroughly researching bankruptcy laws, procedures, and local court rules, they may increase their chances of handling the process competently.

No adversary proceedings or objections: If there are no expected adversary proceedings (lawsuits within the bankruptcy case) or creditor objections, the case may be less complicated to manage pro se.

However, it’s crucial to recognize that even in seemingly straightforward situations, bankruptcy can have far-reaching consequences. Mistakes or oversights in the filing process could lead to adverse outcomes, including case dismissal, loss of assets, or an unfavorable debt repayment plan.

Individuals and businesses considering filing for bankruptcy without professional guidance should proceed with caution and take the following into account:

Legal resources: Utilize reputable legal resources, self-help books, and online bankruptcy forms provided by the court to ensure compliance with bankruptcy rules and regulations.

Local rules: Be familiar with the local bankruptcy court’s rules and procedures, as they may differ from jurisdiction to jurisdiction.

Legal aid and clinics: Seek assistance from legal aid organizations or bankruptcy clinics that offer guidance and support for individuals representing themselves.

Court clerk assistance: The court clerk can provide general information about bankruptcy procedures but cannot offer legal advice.

Honesty and accuracy: Provide accurate and complete information in bankruptcy forms and disclosures to avoid potential legal issues.

Consider consulting an attorney: If at any point the case becomes more complex than anticipated, or if there are uncertainties about the best course of action, it’s essential to consult with an experienced bankruptcy attorney.

Ultimately, while it is possible to handle bankruptcy pro se in certain situations, seeking professional guidance from a qualified bankruptcy attorney remains the best way to ensure a smooth and successful bankruptcy process and protect the individual’s or business’s rights and interests.

If you or anyone you know is struggling financially and considering bankruptcy, here are some essential pieces of advice to consider before making any decisions:

Explore alternatives first: Before proceeding with bankruptcy, explore all available alternatives, such as debt negotiation, debt consolidation, credit counseling, or working out repayment plans with creditors. Bankruptcy should be seen as a last resort after all other options have been thoroughly considered.

Seek professional guidance: Consult with an experienced bankruptcy attorney to assess your financial situation, discuss available options, and understand the potential consequences of filing for bankruptcy. A qualified attorney can provide personalized advice based on your specific circumstances.

Educate yourself: Take the time to learn about the bankruptcy process, different chapters of bankruptcy, and their implications. Understanding the potential outcomes and requirements will help you make informed decisions.

Be honest and disclose all information: If you decide to proceed with bankruptcy, provide full and accurate information about your financial situation. Honesty and transparency are essential for a successful bankruptcy filing.

Consider the long-term impact: Recognize that bankruptcy can have lasting consequences on your credit score and financial standing. Be prepared for challenges in obtaining credit or loans in the future.

Prioritize essential debts: If you have limited resources, prioritize essential debts like housing, utilities, and essential living expenses over unsecured debts.

Create a budget: Develop a realistic budget that focuses on essential expenses and eliminates unnecessary spending. A budget will help you manage your finances better during and after the bankruptcy process.

Avoid incurring new debts: Refrain from incurring new debts or using credit cards excessively before and during the bankruptcy process. Any new debts might not be discharged in bankruptcy.

Seek financial education: Consider attending financial education courses or workshops to improve your money management skills and avoid future financial troubles.

Take care of your emotional well-being: Financial difficulties and the bankruptcy process can be emotionally challenging. Seek support from friends, family, or counselors to cope with stress and anxiety. Watch YouTube videos with guided meditation or try a stress-reducing therapy called “tapping,” yoga, or other relaxation exercises, all of which are free.

Be patient and persistent: The bankruptcy process may take time, and there may be bumps along the way. Stay patient and persistent as you work through the process with the help of your attorney.

Learn from the experience: Use the bankruptcy experience as an opportunity to learn from past financial mistakes and develop healthier financial habits moving forward.

Remember that everyone’s financial situation is unique, and bankruptcy might not be the best solution for everyone. Take the time to evaluate your circumstances thoroughly and seek professional advice to make the most appropriate decision for your specific needs and goals.

Generally, filing for bankruptcy is an action of last resort. It drastically affects credit rating and stays on a credit report for 7-10 years, depending on the type of bankruptcy filing. Borrowing power will be limited or nonexistent.

It can affect a person’s future employment, and they may be considered a higher-risk employee in multiple industries, including hospitality, government, financial services, and building management.

Debt consolidation may be an alternative if an individual has multiple liability payments they can’t manage. Given the costs associated with the service, there is little to no value if there are only one or two debts to manage.

For credit card debt, individuals should reach out to each company and negotiate on their own behalf to reduce payments or the balance. Credit cards will likely be closed for future charges, but the payments may be more manageable.

Evaluate all options for raising funds and increasing income. If the individual has income and owns property, consider a home equity line of credit.

Borrow from your retirement plan if the maximum loan is less than 50% of the account value or $50,000. The risk is if employment is terminated, the funds will be taxed if not returned. A 10% penalty applies if the person is under 59 and one-half years old.

Borrow from friends and family as a last resort. Evaluate your options for paying the money back. This may be a viable option if the individual needs time to raise the funds. If there is no option for paying back the funds, avoid personal loans.

If a legal process is involved, the right decision is to hire an attorney. Errors in the process may end up costing more than the cost of professional help. (You don’t know what you don’t know.)

Bankruptcy can have profound personal and professional consequences. While the protection of the automatic stay can be appealing, there can be other short- and long-term collateral consequences for the unwary.

A Chapter 7 bankruptcy remains on your credit report for 10 years. A Chapter 13 bankruptcy remains on your credit report for 7 years. The former is a liquidation of non-exempted assets to pay creditors, with the remaining balance being discharged. The latter is a payment plan over 3 or 5 years, with a discharge of any remaining balance at the end of that period.

Having a bankruptcy on your record can make it difficult to qualify for a mortgage, especially in the first few years after filing. Any other lines of credit you apply for will also likely have significantly higher interest rates to compensate for the perceived risk.

There may also be professional consequences. For example, those with a security clearance may lose that access. If you cannot access classified information for your job, you may be unemployed. This could also apply to professions such as lawyers. The board of professional responsibility may perceive a high risk of misappropriating client funds if the lawyer is in personal financial trouble.

If you are a partner or member of a business, the operating agreement may have a provision that causes dissociation upon filing bankruptcy. This is to protect the business from being caught up in the bankruptcy proceedings, because your interest in the business will likely become a part of the bankruptcy estate. It is especially critical to consult with a bankruptcy attorney if you have any part in operating a business to determine if this is possible.

Before running to bankruptcy, try to negotiate with creditors. Sometimes they will understand and be willing to work with you. There can be deferment plans available for temporary relief that will help you get caught up on other bills.

You could also consider doing a balance transfer to another account. This doesn’t solve the problem ultimately, but it can be a strategic move to put out a few fires for a while. But it is generally unwise to transition unsecured debt, such as credit cards and personal loans, into secured debt.

While there may be some equity in your house you could use, the transfer of risk goes from a drawn-out court process for unsecured debts versus an out-of-court foreclosure proceeding. Secured debt is more favorable for the creditor, so stick with keeping unsecured debts as unsecured if you have the ability to do so.

When dealing with the legal system, it really is advisable to engage with an attorney licensed to practice law in your jurisdiction. Bankruptcy is an exceedingly complicated process, with many forms and deadlines. If those requirements are not met properly, it could jeopardize the protections a bankruptcy offers if that is a necessary choice.

I don’t have any circumstances I would recommend someone handle a bankruptcy on their own. When dealing with an incredibly difficult choice like this, it is worth it to have someone there as an advocate and a counselor. Bankruptcy attorneys generally work legal fees into the payment plan for a Chapter 13 bankruptcy. For a Chapter 7, the advice is usually to pause all debt payments and save up the cash to pay the retainer, which can be between $750 on the low end up to around $2,000.

If bankruptcy is on the table for you, it’s not the end of the world. Lots of people have had to do this before because of difficult life circumstances. The purpose of this system is to allow debtors a chance at a fresh start.

The main thing to focus on isn’t what’s happened in the past. It’s what to do moving forward. Do some self-reflection. Ask what the decisions were that led you to where you are now. Sometimes life throws unexpected catastrophes our way and we have no way to prepare for them.

But we often make decisions that lead ourselves into hard financial situations. And we need to take ownership of the decisions we have made, good or bad. From there, we can resolve to do things differently in the future. We can’t change the past, but we can be determined to learn from it and try something new moving forward.
Before filing for bankruptcy, consider reaching out to a financial counselor or coach. These professionals help people make a good budget, pay off their debts, build savings, and adopt the mentalities that lead to financial freedom.

There is usually an investment to make with these professionals. However, the return on the investment can be many times over if you really engage with that person and submit yourself to a new process. And the overall investment is likely less than what working with a bankruptcy attorney would be. Not to mention that there is no adverse impact on your credit report. You will likely see significant improvement by doing what the counselor or coach recommends.

Ultimately, personal finance is mostly about the behaviors that we do on a daily basis. If we change those and truly believe we can overcome our financial difficulties, we have taken the first steps to living in financial freedom and conquering the things that hold us back.

A bankruptcy petition, often the last resort to debt relief, should be avoided or alternatives considered at any cost. Bankruptcy essentially is a reallocation of the rights and obligations between the debtors and creditors beyond the debt covenants. Bankruptcy laws either protect the creditor or the debtor or both. However, whose interests will be safeguarded during the bankruptcy period varies case by case. In general, the debtors risk losing control of their financial assets, real properties, privacies, and reputations and the ability to regain financing resources in the future. Moreover, not all debts can be forgiven under bankruptcy laws.

People may think filing for bankruptcy will solve their financial problems once and for all, but the cost of going bankrupt is high, if not the highest. For individuals, Chapter 13 filing may be an alternative to the Chapter 7 petition, and provides better protection to the debtors than Chapter 7. For a business that has high financial leverage and continues to generate good business cash flows, Chapter 11 filing could benefit both the debtor and creditors. However, the cost of filing Chapter 11 is a significant factor in the decision-making.

Filing for bankruptcy is a lengthy, time-consuming, and costly process. People and businesses may consider some alternatives:

1. Negotiate with the creditors for a new repayment plan, a new debt to replace the old debts, or a bridge loan to release repayment pressure temporarily.
2. Discuss a debt consolidation plan with several creditors or new creditors.
3. An equity business facing bankruptcy pressure should consider the possibility of a debt-equity swapping plan.
4. Individuals should consider Chapter 13 filing as an alternative to Chapter 11 filing.
5. Look into asset management companies specializing in troubled assets as some provide better solutions and financial resources.

Filing for bankruptcy requires specialized professional knowledge and skills. It is recommended that everyone hire a professional for this process.

Bankruptcy is not a cure-all for financial hardships or a solution for everyone. The cost of going through this process is very high. As a result, planning your finances well ahead is the key. One simple rule of thumb is using your financial leverage wisely. In plain words, this means not taking on an amount of debt that is beyond what you can manage.

Bankruptcy has two primary objectives: It protects debtors by giving them a “fresh start” without worrying about the creditors’ claims being held over their heads. Additionally, it works to protect creditors by ensuring that their interests are protected and they are treated equitably among other creditors competing for a debtor’s assets. Common misconceptions about bankruptcy are that you must be insolvent to declare bankruptcy and that bankruptcy is a bad thing. Both of these thoughts are false.

It must also be clarified that bankruptcy is a federal matter, not a state matter. While state laws may have some bearing on a bankruptcy estate, bankruptcy itself is governed by federal law (Title 11 of the U.S. Code, or the “U.S. Bankruptcy Code”) and is adjudicated in the federal courts (the U.S. Bankruptcy Courts, which are units of the U.S. Districts Courts and are provided for under Article I of the U.S. Constitution and the legislative acts of Congress given their constitutional power to establish these courts).

Under the U.S. Bankruptcy Code, different types of bankruptcy relief are available to the debtor. One factor is determining the debtor’s status — whether they are an individual or married couple, their profession in some circumstances, or whether they are a business entity (and what type of business) or a municipality. Another factor is ascertaining what the parties wish to achieve — whether for the debtor to sell what are known as nonexempt assets to pay their creditors (which is called “liquidation”), to retain ownership of their assets (and continue business operations) while they negotiate with creditors (which is called “reorganization”), or to establish a repayment plan where the debtor makes installment payments to repay their creditors. Depending on such, different chapters of the Bankruptcy Code might apply.

Also, depending on the type of bankruptcy, they can either be voluntary (on the part of the debtor) or involuntary (meaning that creditors could potentially “force” a debtor into bankruptcy). The amount of debt involved may have some impact on the types of bankruptcy employed as well.

While bankruptcy will potentially adversely affect the debtor’s credit, like any other debtor situation, it is possible to recover over the long run with due diligence and hard work. The impact will typically lessen over time as debt is reduced or discharged.

First and foremost, before it comes to bankruptcy, communicate with the creditors. It is important to remember that all the creditor wants is to get paid what is due to them. Sometimes they might be willing to work things out one on one to lower or spread out payments or even lower or waive interest as long as they get what they are due.

While creditors can employ a number of tools to protect their rights such as taking a security interest in collateral, attaching liens, and executing garnishments, various other types of legal instrumentalities are available to them. But debtors’ rights are protected, too. It is not a one-sided game. Several types of agreements exist where a debtor and their creditors can agree to accept a lesser amount due in full satisfaction of the debt (which are called creditors’ composition agreements) or other negotiated or settled agreements. In many cases, an agreement to accept at least something instead of nothing and to discharge the rest is favorable to the alternative.

Otherwise, depending on availability, debtors might have access to various debt management plans, debt settlement programs, and debt consolidation loans through third-party assistance. It is extremely important to shop around and find the solution that best fits that debtor’s situation. Also, it is a “buyer beware” world out there. Not all solutions or providers are the same, and some can actually worsen a debtor’s situation. Therefore, it is important that a debtor asks around and does some investigation into these programs.

Perhaps the best place to start down this path is to find a reputable consumer credit counseling agency that can assist (and sometimes even advocate for the debtor). In fact, in order to file for bankruptcy, it is now required that a debtor receive credit counseling from an approved nonprofit agency beforehand.

As with any legal matter, it is highly suggested that the debtor consult competent legal counsel before pursuing bankruptcy. That qualified professional can best explain the alternatives to bankruptcy, counsel their client on the proper form of bankruptcy to pursue and verify the accuracy of the petitions and schedules that must be filed. These are also the minimum requirements of counsel for consumer debtors.

A qualified, licensed attorney will advocate on the debtor’s behalf and should know the rules and what they are doing. They are simply in a better position to do so. They should also know what to do should creditors continue to try to collect against the debtor after bankruptcy has been initiated.
Remember that bankruptcy is a federal matter in the federal courts. Even appearing pro se (representing oneself) in municipal or small claims court can end in catastrophe. There are many complex rules and procedures that apply in the courts and deadlines and requirements that must be met. The federal bankruptcy courts, which have distinct rules and procedures, are certainly no exception.

Do your homework. Check out all the possibilities first to satisfy debts, consult a reputable credit counseling agency, and hire competent legal counsel should it come to bankruptcy.