Five Questions to Ask Before Filing Bankruptcy

Earning a sizeable income may prevent a bankruptcy discharge. Since many states have enforced tougher bankruptcy laws, it has become more and more difficult for individuals with large salaries to file a Chapter 7 bankruptcy. Furthermore, some states will not permit a discharge if your spouse earns a sizeable income. Before filing for bankruptcy, consult an experienced lawyer and discuss your options. If your income exceeds the average for your state, or if you have disposable income each month, you may not be eligible for a Chapter 7.

2. Do I Own a Home?

Since several real estate markets across the nation have experienced rapid appreciation, owning a real estate property could hinder a bankruptcy filing. If your property has substantial equity, a judge may not grant a request for Chapter 7 protection. Instead, you become eligible for a Chapter 13 repayment plan. Even though a certain amount of equity is protected, homeowners filing a bankruptcy petition should prepare themselves for the possibility of selling their home to payoff outstanding debts.

3. Do I Owe the Government?

If money is owed on delinquent taxes, contact the IRS immediately and request a statement. A knowledgeable attorney can determine whether certain IRS and state tax debts are dischargeable. Do you have government student loans? If so, these debts may not be included in a Chapter 7 bankruptcy. Before filing a bankruptcy petition, some bankruptcy experts recommend a questionable maneuver - refinance government loans with a bank. This way, the debts become eligible for Chapter 7 discharge.

4. Do I Continue to Use Credit Card?

Before approving a bankruptcy discharge, a judge will carefully review your credit history for the past six months. This is necessary to detect fraudulent activity. For example, some persons will acquire several credit accounts within a short period, max-out the credit accounts, and file bankruptcy. Deliberately acquiring large debts with the sole intent of filing bankruptcy is illegal, and a judge can quickly identify such behavior. In this case, a bankruptcy discharge is not granted, and the person must repay all creditors.

5. Do I Own a Car?

If filing for Chapter 7 protection, filers can keep their automobile. This process is called "reaffirming the debt." The automobile lender is notified of the bankruptcy; however, they will not reclaim the collateral. On the other hand, if the debtor stops payment on the reaffirmed debt, the auto lender is within rights to collect the automobile.