Should You File Chapter 13 Bankruptcy

Filing for Bankruptcy

Television commercial after commercial advertises how easy it is to file for bankruptcy.  When people get desperate they listen to these commercials and think this is the only way out of their troubles.   Before you file for bankruptcy you should do your homework.  Part of this homework should be how much do you owe others which may also be included in your bankruptcy.  If you owe too much to others you may not have enough  money to live on monthly because of your bankruptcy payments.  For example if you have a mortgage that is over $1000 per month, which you are behind $27,000 and you owe someone else another $40,000, you may not be able to make your bankruptcy payments and continue to pay your regular bills.

What Is Your Income

You should also ask how income is calculated to determine your monthly payments for bankruptcy.  Your gross income rather than your net income is considered when deciding the payment amount.  This means that any deductions such as insurance, taxes and 401K savings are not deducted from your income first.

How Are Expenses Determined

The attorney will ask for all your expenses for monthly living.  This includes your full mortgage payment, any car payment, utilities (which may not be fixed), and other miscellaneous expenses which are also not fixed.  The problem with expenses we cannot determine if other things are going to change over the 5 year period.  For example if your car breaks down and it is not feasible to fix the car, you may need to get a new car.  You cannot get a new car while you are in bankruptcy unless the judge approves you to have new credit added.  Expenses are extremely unpredictable for 5 years even if you are not in bankruptcy.

Some Questions You Should Ask

How does this affect obtaining new credit?  You cannot obtain any new consumer credit until your bankruptcy has been dismissed or discharged without the approval of the court.

How does bankruptcy affect getting insurance or utilities turned on?  Because people in bankruptcy are often consider a credit risk, you may be required to pay a deposit before you can obtain insurance or have utilities turned on such as electricity or gas.

What if my situation changes?  If your situation changes, you can go back to your attorney and have the court petitioned to reduce your bankruptcy payments.  However if you don't ask about this you will not know because the attorney certainly may not explain this to you before you file for bankruptcy.  Of course there will be a fee if you do petition the court to change your bankruptcy payments.

Can you still lose your home while in bankruptcy?  Since your back payments owed on your home is the only thing included in your monthly bankruptcy payments, you are still responsible for paying your regular house payment on a monthly basis.  This means that if you cannot afford to make this payment you will still lose your home.  Any money which has already been paid toward the back payments will just be lost money.


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