Filing for bankruptcy is a right guaranteed by the U.S. Constitution to help individuals who cannot afford to pay their debt. In order to qualify for bankruptcy filing as an individual, you must fit all of the following requirements:
1. You must have accumulated at least $1,000 in debt
2. You must be unable to meet regular payments as they are due
3. You must have stopped making regular payments as they are due
4. Your non exempt assets, if liquidated, must not provide a sufficient amount of funds to pay off your existing debt.
But just because you qualify for bankruptcy doesn’t mean that it is the best option for everyone. In most cases it's best to
avoid bankruptcy. Filing for bankruptcy has many negative, long-term effects that everyone should know about before they seriously consider it as a solution to their debt problems.
The downsides of bankruptcy
Bankruptcy is widely considered to be the last resort option for
debt settlement. While bankruptcy can provide immediate relief from large amounts of debt, it also has several negative, long-lasting effects. Filing bankruptcy can stay on your credit report for up to 10 years, making it difficult to apply and obtain credit, or to find employment and a place to live.
Filing for bankruptcy is public information, meaning the fact that you have filed bankruptcy cannot be kept private. In some places, such as upstate New York, the names of bankruptcy filers are even printed weekly in the newspaper.
Bankruptcy can also be an expensive process. Among the fees associated with bankruptcy are the costs of required credit counseling and debtor education certificates, bankruptcy filing fees, and any legal fees charged by your attorney.
What can you keep?
When filing for bankruptcy, you may be required to turn some of your property over to a trustee. This trustee will then liquidate your non exemptible assets in order to raise money to pay off your debt. You are probably wondering what qualifies as non exemptible.
The following possessions are considered ineligible for liquidation and may be kept by an individual filing for bankruptcy:
1. Necessary clothing of the debtor and dependents (up to $4,000 in value)
2. Household furnishings and effects up to ($4,000 in value)
3. One motor vehicle (up to $5,000 in value)
4. Medical and dental aids required by the debtor and his or her dependents;
5. The books of a professional, required in his or her profession
6. Tools of the trade (up to $10,000 in value) and used by the debtor to earn income;
7. Equity in the principal residence of the debtor (up to $40,000)
According to Chapter 12 bankruptcy laws, debtors who are fishermen or farmers by trade are eligible for additional exemptions. All of the values of exemptible items are based upon what price they can currently be sold for – not the cost of their replacement. Therefore, it is almost always best to
avoid bankruptcy.
