When to consider filing for bankruptcy

Filing for personal bankruptcy should not be taken lightly. However once your unsecured debt reaches about 20-30% or more of your gross income a bankruptcy filing may be appropriate,   

• For Individuals most common types of Bankruptcy are Chapter 7 and Chapter 13.  Most  Bankruptcies filed are under these chapters.  In general, Chapter 7 provides a quick solution to eliminate certain debts (such as credit cards and medical bills), while Chapter 13 offers a longer solution where debts are rully or partially paid back over time (such as a vehicle, mortgage, and taxes). 
• Under the bankruptcy laws individuals are able to retain most if not all of their assets including their home, automobile, clothing, furniture, bank account, 401K, IRAs cash 403Bs, pension plans, Life Insurance etc.   You property needs to be properly disclosed and exempted in order for you to retain it after a bankruptcy filing.  In Massachusetts you can exempt up to $500,000 in equity in you home with a properly filed Homestead under Mass General Laws Ch 188.
• You debts are generally classified into several categories Secured, Priority and Unsecured Non-priority:
  • Your secured debts are loans in which your obligation to pay is backed up with collateral for example a car loan of a house mortgage. These secured debts are subject to the secured creditor having the right to take possession of the property if you do not make the payments per your contract. 
  • Priority Debts include items such as some taxes, domestic support obligations, wages owed others are normally not dischargeable.
  • Unsecured Non-priority debts include most credit card debts, medical bills, personal loans, utility bills, some taxes, lines of credit etc. 

When you file bankruptcy your personal obligation to repay the secured and unsecured non-priority debts is discharged however if you intend to retain your property that has a secured loan you will have to continue to make your payments or in some instances you could redeem the debt for the current market value of your property.  

What not to do if you decide to file Bankruptcy

• Don't hold back any information from your attorney.  You may lose assets that you may otherwise have been able to keep. Additionally, non-disclosure of information could result in fines case dismissal and/or you could face criminal charges
• Don't pay your relatives or friends in favor of your other creditors, and don't try to transfer property out of your name and into theirs. If you do, the bankruptcy trustee may sue them on behalf of your creditors to get the money back.
• Don't cash in your retirement plan IRA or ERISA qualified plan prior to filing bankruptcy(401K 403B etc.)  These accounts are likely exempt and if so you can keep these assets and still file bankruptcy on your debts

• Don't attempt to sell your property for less than what it's worth. This will not reduce the amount you eventually have to repay — and you or whoever you sold it to may end up stuck with the difference.
• Don't run up your credit card debt prior to filing a bankruptcy. The court may view this as an attempt to exploit the bankruptcy system, and the judge may treat it accordingly.
• Don't buy any luxury items prior to filing for bankruptcy. Any luxury items purchased within 90 days of filing for bankruptcy are viewed as non-dischargeable debt.
• Don't take any major cash advances off of credit cards prior to filing for bankruptcy. The court may suspect that you are acting in bad faith and may refuse to discharge the debt

Given the complexities of the bankruptcy laws I highly recommend that anyone considering filing s should contact a qualified Bankruptcy Attorney

Email rschifone@comcast.net

More info www.schifonelaw.com