If you are considering bankruptcy, it likely means you are unable to repay your debts. Declaring it means you are attempting to enter a legally-protected status that will enable you to work with your creditors to find an alternative arrangement for paying back what you owe.
On the plus side, bankruptcy enables you to alter the method by which you repay your debts. Debt can often be discharged, and you will be legally protected as you repay your debts. When the process is over, you’ll essentially have a clean slate and be in a position to better repay what you owe and move on with your life.
However, declaring bankruptcy obviously comes with major challenges. You will lose control over your assets, which will be sold or otherwise monetized by the court in order to supervise how your debt will be repaid. Your credit will be severely damaged by this process.
Ironically, bankruptcy is expensive, and you’ll almost certainly need an attorney to help you through the process. Furthermore, bankruptcy is not a cure-all. Some debts, like taxes or child support, cannot be discharged through this process.
Preparing for a Bankruptcy Declaration
The decision about whether or not to declare bankruptcy is one that can only be made by you, your financial planners, and attorneys. However, if you are going to declare bankruptcy, here is how you can prepare:
• In most cases, you will have to complete some sort of “means test.” These can be found online and vary from state to state. However, this means test will determine your assets, income, and debts and then use that information to find out if you are even eligible for bankruptcy protection.
• Gather a comprehensive list of your assets, income, and debt. Make sure to have the supporting paperwork that backs up all of these documents as you may need to present them to an attorney or the court system in the near future if you choose to proceed with bankruptcy.
• Speak with a financial consultant, nonprofit organization, or bankruptcy attorney. Their expertise will be necessary in order to see how bankruptcy may help you.
Bankruptcy should not be viewed as a get-out-of-jail-free card, and there will likely be many debts for which you will be responsible. However, depending on your circumstances, it may be your best option.
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