When debt overwhelms you, you may believe that bankruptcy is your only option for financial relief. While in certain cases, bankruptcy may be the best course of action, there are several things you should consider before making a final decision:
- Whether bankruptcy will really help—Think about the types of debt you have and what you wish to achieve through the bankruptcy process. Keep in mind that many creditors are willing to help debtors settle their debts, so if you can afford to do so, this may be how you should handle your financial situation instead. Be aware, however, that ‘forgiven debt’ creates a taxable situation at tax time.
- If you qualify—In order to file for bankruptcy, there are many requirements you have to meet. For example, if you intend to file Chapter 7 bankruptcy, your income has to be low enough to pass the means test. If you are considering Chapter 13 bankruptcy, your debts must not exceed a certain amount. 2016 limits are $1,284,200 for secured, and $394,725 for unsecured.
- The value of your property—One of the most important things you need to consider before filing for bankruptcy is the value of your property. This is because you are permitted to keep a certain amount of property if you file Chapter 7 bankruptcy, but if you file Chapter 13 bankruptcy, you may not be allowed to keep all of it.
- The type of bankruptcy you should file—There are many factors that impact whether you should file for Chapter 7 or Chapter 13 bankruptcy. These include your income and expenses, the types of debt you owe, whether or not you own nonexempt property, and what your ultimate goals are for going through with the filing process.