Filing for bankruptcy is never ideal, as it can have a severe impact on your credit score. But if you’re simply unable to keep up with payments on your debt, then correctly handling a bankruptcy is a much better option than simply letting things spiral out of control. The first thing you’ll want to do is get a great bankruptcy attorney on your side. Not all top law firms handle bankruptcy (and, indeed, you don’t want to end up at a so-called “bankruptcy mill,” where the lawyers handle nothing but bankruptcy filings and therefore attempt to churn out as many as possible, paying little attention to quality). However, you’ll often find that an attorney for family law or personal injury will often also offer services as a real estate attorney, contract attorney and bankruptcy attorney. You’ll just need to do some research and ask for references.
Once you find the right attorney, you’ll need to discuss what kind of bankruptcy you should file for. There are essentially two major options for non-business entities:
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also called “straight” or “liquidation” bankruptcy. As that suggests, it involves liquidating your assets in order to pay off your creditors (or get as close to that goal as possible). The major upside of Chapter 7 bankruptcy is that it relieves you of the duty to pay off your debts after the bankruptcy. However, certain kinds of debt — such as taxes, educational loans, alimony or child support — cannot be discharged under Chapter 7. Plus, you may not be able to keep your house or car unless you can afford the payments on them.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also called a “wage earner’s plan,” and it allows you to restructure your debt under a plan to pay it off (assuming you have a regular income). The biggest advantage of this route is that you may be able to stop foreclosure proceedings on your home if you are about to lose it. The downside is that you will be expected to pay off all your debts according to a court-approved plan.
Have you started looking for a bankruptcy attorney yet? Share your tips, based on what you’ve found so far, in the comments.