Sunday, December 12, 2010

Why Bankruptcy? Reasons For Bankruptcy Continued

It occurred to me, after writing my last post, Reasons For Bankruptcy, that while I may have addressed the questions Why bankruptcy? and What are the reasons for bankruptcy?, I may not have answered the question: For what reasons is a person granted a bankruptcy discharge?

If you are reading this, you already likely know the reasons that people file for bankruptcy. At least you know why you are considering filing bankruptcy. What you may be looking for are the reasons why bankruptcy discharges are granted.

Am I right? If so, keep reading....there are some bankruptcy myths that you should know about.

First of all, you don't need a "valid" reason for bankruptcy. You can either pay back some or all of your debts or you can't. Unless you are committing bankruptcy fraud (that's a topic for another post and one that you should discuss with an attorney), there are no "invalid" reasons for bankruptcy. For example, you may have lost your job but even if you QUIT your last job, you can still file for bankruptcy.

Every situation is different, of course, and you should discuss yours with a bankruptcy attorney, which I am not. However, in most cases, the court will only look at the bottom line and see if you pass a means test. The bankruptcy means test is exactly what it sounds like. It is basically a six month look back at your finances and assets and it will determine if you have the means to pay back some or all of your debts. Then you will do so according to a court order.

In a chapter 7 bankruptcy (which not everyone qualifies for), all of your debts are discharged but your assets (beyond an allowable exemption which varies from state to state) may be seized and sold to pay your creditors.

In a chapter 13 bankruptcy, you are required to pay back some or all of your debts and put on a payment schedule for up to five years.

Common Bankruptcy Myths include:

· The 2005 bankruptcy laws made it impossible to file for bankruptcy
· You can't file for bankruptcy if you have quit your job
· Your credit rating will be ruined if you file bankruptcy

Oh, let me address that last one really quick. Sure, bankruptcy does not help your credit rating. But for the average filer, the credit rating is already shot. Bankruptcy, believe it or not, will not make this worse in many cases. Again, always talk to a bankruptcy attorney before acting upon any advice you find on the internet. Best of luck to you!

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