When debt becomes too much for you to reasonably handle, bankruptcy is a viable option. Filing allows you to establish a clean financial state, and in many cases it allows you to retain property, such as your primary home and vehicle.
In the event it is the right option for you, Kiplinger recommends the following bankruptcy guidance. By being fully informed, you can enter into the process confidently.
Manage spending prior to filing
There is a misconception that bankruptcy forgives all personal debt. However, your spending in the 70 to 90-day period prior to filing is often scrutinized. If your trustee believes you intentionally spent money frivolously or made exorbitant withdrawals from a retirement account, they may deny your filing.
Bankruptcy cannot eliminate all debt
If a portion of your debt entails back taxes or child support payments, bankruptcy will not have much of an effect. The law protects these debts, so they are not usually discharged. While it is possible to discharge student loan debt, it depends on whether repaying the debt would result in financial hardship.
Expect a lengthy process
How long bankruptcy takes depends on how you file. With chapter 7, the entire process can take as long as six months depending on your assets and how much money you owe. With chapter 13, the process can take years. Most chapter 13 cases take anywhere from three to five years, during which time you must pay back the money according to your specific reorganization plan.
Transparency is also crucial when filing for bankruptcy. Being forthcoming and honest about your finances ensures a stress-free process, while also helping you to avoid penalties.