Should I consider Bankruptcy as an Option?

Bankruptcy can be considered a last resort to solve your money and debt problems. On the positive side though, bankruptcy can protect you and your property by stopping all collection actions by your creditors. On the other hand, it may make be difficult to get a mortgage, acquire credit, buy a car, or even get a job. Filing for bankruptcy will affect your life for the next seven years and beyond, so it is important to know your basics.

The most common forms of bankruptcy are:

1. Chapter 7 (liquidation) – to qualify, income must be less that the state’s median income. See the California Bankruptcy Means Test for additional information.

2. Chapter 13 (reorganization) – for individuals to restructure debt. May also be used by individuals who do not qualify for Chapter 7.

Before filing for bankruptcy, consider the following:

Understand the consequences on bankruptcy by reviewing this information, and consulting professional advice from someone you trust. Please contact the Santa Barbara Lawyer Referral Service (805-569-9400) to be referred to a qualified attorney.

Do the math. Determine how much you owe, your payments, what income can be devoted to these payments, and whether or not you will be able to bring in more income.

Know whether you will able to mentally and emotionally handle your debt. Consider how you will feel if you file for bankruptcy or if you can handle living with your current debts.

Consider your future. Bankruptcy can affect your job applications, home insurance, and ability to make large purchases. Would filing for bankruptcy prevent you from reaching professional or personal goals in the next 10 years?

Seek counsel. A non-profit credit counselor can help you review your financial situation and provide recommendations.

Research alternatives. See if you can borrow from a friend, look into debt management programs, or negotiate with your creditors.

If you’re still considering bankruptcy as an option, here are a four signs that bankruptcy might be your best option:

1. If it would take you more than 5 years to repay your current debts

2. If your current income cannot cover both your debt and everyday expenses

3. If you are facing legal actions by your creditors OR you want to protect certain assets from your creditors

4. If you are facing lawsuits, wage garnishments, or bank levies