Do You Qualify For Bankruptcy?
As previously mentioned, anyone who has to file for bankruptcy needs to pass a means test. While this test differs slightly from state to state, there’s a general list of criteria one needs to satisfy in order to be considered eligible.
- Total debt equates to more than half of the individual’s yearly income
- Even if extreme measures were undertaken, it would take the individual 5 years or more to pay off all outstanding debts
- Quality of life is severely impacted due to debt
- Debt-to-income ratio is so high there is little to no disposable income
- Monthly income below the median for the state (high earners can also qualify for chapter 7 Bankruptcy if their monthly expenses are high as well)
>>Read More: How much Does it Cost?
How To File Bankruptcy Without A Lawyer
Filing for bankruptcy without professional legal help is called filing ‘Pro Se’. Bankruptcy has long term effects on one’s financial future and it’s highly recommended that it be done with the guidance of a legal professional. Should one decide to file Pro Se, all paperwork is available free of charge through the uscourts.gov website.
Many people taking this route may also enlist the services of a Non-Attorney Petition Preparer. These are people who aid in the filling out and filing of paperwork but are legally not allowed to give advice or explanations. The success rate of cases filed Pro Se are significantly lower than those done with the help of a lawyer. The reasons for enlisting a legal professional include:
- Advising which debts can be discharged
- Advising which type of chapter to file under
- Assisting with the correct completion of forms
- Advising which property can be kept
- Determining which secured debts to surrender, redeem, or reaffirm
- Determining if bankruptcy truly is the best option
Our Tip For Other Options
Bankruptcy is a big deal and shouldn’t be undertaken unless there are no other options. It also has long-lasting effects on one’s credit report. One of the most commonly asked questions is “how long does bankruptcy stay on your credit report?”.
Depending upon which Chapter one files under, a bankruptcy entry will stay on one’s credit report for 7 - 10 years. Due to this, all other options should be explored and exhausted before filing for bankruptcy. The following options should always be tried first:
- Debt Settlement: For those who’ve got significant debt there is always the chance that creditors will come to a settlement agreement with the borrower. This usually involves eliciting the services of a debt management specialist as they know best how to approach this.
- Consolidation Loan: One of the most common strategies undergone by those looking to better manage their debt is to consolidate it. In this scenario, a consolidation loan is taken out that is used to pay off all outstanding debts. The consolidation loan is then paid off in monthly payments.
- Asset Liquidation: Selling off assets such as vehicles, second properties, or anything else of value can allow people to better manage their debt without filing for bankruptcy.
>>Debt consolidation vs bankruptcy
The Bottom Line
Bankruptcy is a last resort option for those who can no longer manage their debt effectively. While the process does offer complete elimination of most debts depending on the filing type, it can be a complicated process and is always best undergone with the help of a qualified legal professional.