Before you declare personal bankruptcy, there are a few things you should keep in mind. Personal bankruptcy is a serious financial step which you should not take lightly, and you should always look into other alternatives before filing your request with the bankruptcy court.
Is bankruptcy your only option?
That’s not to say that bankruptcy is not a viable option for many individuals. It just means that you should be careful to make the best decision possible for you and your family.
First of all, you should be aware that Congress passed a new bankruptcy law in 2005 which established some additional restrictions and regulations for chapter seven bankruptcy.
In case you’re not sure about the different kinds of bankruptcy, chapter seven is the most talked about form of bankruptcy because it tries to wipe out your debt completely. This is what the new bankruptcy law specifically applies to.
One of the major changes in the bankruptcy code is what we call the means test, which is the process in which the court examines your salary and expenses to determine if bankruptcy is a legitimate need or just exploitation on your part. Those with low salaries won’t even have to bother with the means test.
If you have a higher salary compared to other families in your state, you’ll have to undergo the aforementioned means test in order to qualify for chapter seven bankruptcy.
Believe it or not, most people who would have qualified previously will still be able to file chapter seven under the new law (even though there may be some annoying requirements added on).
By the way, if you fail the means test, you won’t be able to file chapter seven bankruptcy. You might still be able to file chapter 13 which creates a payment plan over several years and helps to catch up on things such as your mortgage payments.
Before you declare personal bankruptcy, you should remember that it will have a significantly negative impact on your credit rating (although this might not be your priority if you are really struggling financially). There’s certainly life after bankruptcy, but filing chapter seven or any other bankruptcy is still a serious and difficult step to go through.
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