Perhaps you’ve heard the word before on the news, or maybe even had friends who filed bankruptcy, but what do you actually know about bankruptcy? More importantly, if you are considering filing bankruptcy, what things should you know?
Well, obviously, bankruptcy law is complex and one short article can’t cover everything – that’s why there is no substitute for meeting with a competent bankruptcy attorney who can discuss all of the specifics of bankruptcy law.
But, here are the top 5 things you should know before filing bankruptcy:
- Filing bankruptcy is a process. It requires your active and continued participation. The process requires you to provide information regarding your debts, your possessions and many, many other details about your financial affairs. The person who generally is the most knowledgeable about these details is you! So, you must actively participate with your attorney in the preparation of your bankruptcy paperwork.
- Bankruptcy requires you to be realistic. Although bankruptcy is a powerful tool, it only works if you are realistic about what it can and can’t do. Will bankruptcy allow you to live in your house for free? No. But, it can stop the pressure and the cycle of never ending creditor calls, lawsuits, and unpaid bills. But, you must be realistic about your goals and how bankruptcy can help.
- Bankruptcy requires you to list all of your debts – even those to your mom or dad or favorite family doctor – and not just the ones you want to list. Why? The short answer is because the law requires that all debts be listed. But, the longer answer is because the role of bankruptcy is to be fair – both to you, by giving you a fresh start, but also to your creditors, by ensuring that they are all treated fairly in the proceedings. If you were to leave some debts out of your bankruptcy or pay your “preferred” creditors outside of the bankruptcy, that would be unfair to those creditors who were listed because the amount available to repay them would be reduced.
- Bankruptcy requires you to list all of your assets. Just like with debts, you must be honest and disclose everything you own in a bankruptcy – this includes the big items such as houses and cars as well as the small items such as the goods in your house. This does not mean everything will be taken in a bankruptcy (there are many state laws that often can protect most, if not all, of your assets), however, the key is disclosure.
- Bankruptcy does not make you a bad person. Bankruptcy is designed to give people a fresh start. As has been discussed on this very blog, many, many noteworthy and famous people have filed for bankruptcy. The key, however, is to take action to get your financial life back on track.