Should I File For Bankruptcy?

If you've got a lot of debt, and the amount you owe keeps growing, bankruptcy may be a sensible option. But there are a lot of factors to consider, and it isn't right for everyone. Before going forward, consult this guide to see if your situation warrants a bankruptcy filing. The information provided here is for general information only and should not be used as legal advice.

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4 Questions To Ask Yourself Before Filing For Bankruptcy

  1. How Much Do You Owe? You need to calculate your income compared to your monthly expenses, debt, and interest. Fill out a bankruptcy worksheet to determine how long it might take you to pay off what you owe.
  2. What Kinds Of Debt Do You Have? Certain types of debt, such as back taxes and student loans, are exempt from bankruptcy, so understand which payments you can't walk away from.
  3. Are You Prepared For The Effects On Your Credit? This filing will be on your credit report for seven to ten years, which will affect many areas of your life.
  4. What Kind Of Bankruptcy Do You Need To FIle? Depending on your income level and whether you own property, there are options when it comes to discharging outstanding debt. Consult an attorney to determine which is right for you.

States With The Most Personal Bankruptcy Filings

Rank State Filings per 100,000 people
1 Tennessee 610
2 Georgia 524
3 Alabama 519
4 Illinois 470
5 Utah 468
6 Indiana 450
7 Nevada 403
8 Kentucky 391
9 Mississippi 374
10 Arkansas 374

Chapter 7 vs. Chapter 13

Aspect Chapter 7 Chapter 13
Who qualifies? Those with little property who only earn enough to cover basic expenses every month Those with equity in a home and a stable income, but who are unable to make their payments
What happens to my debt? Most debts can be discharged You keep your property, and make a single monthly payment to a bankruptcy trustee
How long does the process take? As little as a few months Payments can take 3-5 years
Can creditors contact me? Not after debts are discharged Only the bankruptcy trustee may contact you
Will I lose my property? Yes, any property that you owe money on will be forfeited No, but you will need to make payments according to the plan set up with the trustee
How long does it stay on my credit report? 10 years 7 years
How do I know if I qualify? Take the means test or have an attorney walk you through it Have a bankruptcy attorney evaluate your financial situation

Is It True That Donald Trump Declared Bankruptcy?

During the 2016 presidential campaign, it was widely reported that Donald Trump had filed for bankruptcy numerous times. This is true, but it was Chapter 11 bankruptcy, which applies to companies. Trump has never filed for personal bankruptcy, but his companies have done so six different times. There are a lot of reasons why a company may file for bankruptcy, and Chapter 11 is different from a personal bankruptcy filing, but it is true that Trump benefited from bankruptcy protection numerous times.

Do I Have To Pay A Fee Or Sign Up For A Service To See My Credit Report?

There are many websites out there that will charge you a fee to get your credit report, or claim to offer a free report but are really trying to trick you into signing up for a monthly service. You are entitled to one report per year from each of the major credit bureaus. Go to Annual Credit Report to access your free reports. This is the only way that you are guaranteed free access to your report.

The Three Major Credit Reporting agencies

What Is A FICO Score, And Is That Different From My Credit Report?

Your credit report is a breakdown of all your accounts, outstanding balances, credit history, and queries of your report. It does not include your "credit score," which is a number that is used as a shorthand to indicate the strength of the information found on your credit report. Viewing your score is not free, but you don't necessarily need it. If the information on your report is all accurate, you should be fine. Also, many credit card companies now offer free access to your FICO score as part of your online account information, so you can view this score without paying any extra fees.

What Factors Affect My Credit Score?

You actually have multiple credit scores, and they may differ depending on the source. Banks will also look at your full credit report, not just the score. But among the factors that affect your credit score, here is a breakdown that comes from Wells Fargo:

Percentage Category What it means
35% Payment History Whether you pay your bill on time. Don't miss a payment, or it could affect your score for years. It's always best to pay your balance off in full each month.
30% Utilization How much money you currently owe. If you have a lot of credit extended to you but don't carry big balances, you're proving to banks that you're responsible.
15% Credit History How you've been with your credit in the past. If you just got your first credit card, it's going to take time for you to build up a history that shows you consistently pay your bills.
10% New Applications If you apply for a lot of cards in a short period of time, that's a red flag for issuers. They want to see that you're capable of handling the credit that's already been extended to you, and that you'll be able to pay off the charges you make.
10% Types of Credit Home loans, credit cards, auto loans, and student loans are all examples of credit, and the more types of credit you have, the more you're proving yourself to be a reliable and trustworthy customer.

In Depth

Dealing with debt can be overwhelming, especially when life circumstances have made it almost impossible to pay back what you owe. If you've missed payments and have creditors calling night and day, you might have thought about bankruptcy, but don't know where to start. Here are four questions to ask yourself when deciding if it's the right move for you.

Question #1: how much do you owe? Sometimes debt can creep up on us, like when you put a major expense on a credit card, thinking you'll be able to pay it off when you get a raise, but the raise never comes. Some people have medical emergencies that keep them from working, and others go through a divorce or end up unemployed. Regardless of what's happened, you want to make sure you owe enough to justify filing.

Just because you have debt doesn't mean you're bad with money or that you didn't work hard. In fact, many wealthy people have had to take action because of their debts. Celebrities like 50 Cent, Mike Tyson, MC Hammer, Francis Ford Coppola, and Curt Schilling all filed for bankruptcy protection. Some of these were business related, but it's important to remember that filing for bankruptcy may be a wise decision.

In fact, many wealthy people have had to take action because of their debts.

The first thing you need to do is calculate how much you owe and how much you plan to make, along with the interest of your debts. That way, you'll know how long it will take to pay it off. You can file for bankruptcy once every six years, so if you do it now, you can't do it again in the near future.

There are limits to how much creditors can take from you should you choose not to file. In total, they can garnish no more than 65 percent of your wages, and they can't take any necessary property. You'll still be able to make child support payments, so your kids won't suffer.

You need to have accurate figures in order to understand whether this is a sensible move. For help, refer to our full guide to filing for bankruptcy. You can find it right beneath this video.

You need to have accurate figures in order to understand whether this is a sensible move.

Question #2: what kind of debt do you have? While bankruptcy can eliminate some of the outstanding money you owe, there are certain things that are exempt. Taxes, student loans, alimony payments, and court fines are among the types of debt that won't be erased. If you owe mostly back taxes and student loan payments, filing for bankruptcy won't do you any good.

For these types of protected debts, such as court-ordered payments and child support, you'll be subject to state law, which is why it's important to understand the rules in your area before proceeding. For more information, check out our full guide right on this page, beneath this video.

Question #3: are you prepared for the effects on your credit? Once you declare, the debt may be erased, but that doesn't mean you're off the hook completely. Your credit report will still carry with it evidence that you filed for bankruptcy, and that can harm you in the future. Typically, a Chapter 13 filing stays on your report for seven years, and a Chapter 7 filing for ten years, and there's no way to get it taken off your report.

Your credit report will still carry with it evidence that you filed for bankruptcy, and that can harm you in the future.

That credit report is the key to a lot of things. If you want to buy a house, lease a car, rent an apartment, or even apply for a credit card or bank account, creditors will look at that report. It's true that having a lot of debt doesn't look good, but if you'd hoped to start a small business and need a loan to do so, you'd have to wait seven to ten years before you even begin.

Question #4: what kind of bankruptcy do you need to file? There are several types of court filings that one can undertake. Chapter 11 bankruptcy is for businesses, to protect their assets when they can't pay their debts. Donald Trump's businesses have claimed this protection six different times. We're not lawyers, and this isn't legal advice, but if you're on your sixth bankruptcy, you should bring in professional help.

The two main personal filings are Chapter 13 and Chapter 7. Chapter 7 is for those who don't have much property beyond necessities, and aren't able to make basic payments. In this case, much of your debt will be wiped out, and creditors can't contact you. You'll have to take what is known as the "means test" to ensure you qualify for this option.

The two main personal filings are Chapter 13 and Chapter 7.

Chapter 13 is for those who have a regular income, but aren't able to keep up with their payments. You can keep your property, and you'll have more time to pay off your delinquent accounts by making a single payment to a bankruptcy trustee. This option takes longer, but doesn't stay on your credit history as long, and is for individuals within specific income parameters.

You may have an idea of how you'd like this process to go, but ultimately, you should talk to an attorney who can explain the possibilities to you and make sure you choose wisely. For more information, check out our full guide to filing for bankruptcy. You can find it right beneath this video.

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