Over a million Americans file for bankruptcy every year. Many people think that filing for bankruptcy will solve all of their debt problems. On the surface it seems that if you file for bankruptcy all of your debt will be eliminated and you can start with a clean slate. Unfortunately it is not that simple.
To file for personal bankruptcy you must reside in a state for 90 days prior to filing and have a total unsecured debt less than $290,525 or secured debt less than $871,550. Debtors (consumers) who earn less than the median income in their state are entitled to file under Chapter 7 http://www.justice.gov/ust/eo/bapcpa/20101101/bci_data/median_income_table.htm. Debtors who earn more than that and who have the ability to repay at least $6,000 over five years would have to file under Chapter 13, which requires a repayment plan.
You must provide proof that you are unable to pay your bills and have sought additional help in the past. You must provide documentation such as: tax returns, paystubs, bank statements, mortgage statement or rental lease agreements, detailed list of monthly expenses including, a list of all debt, amount owed, interest rates, canceled checks and credit card statements, retirement accounts, business income and debt, and child support. If you decline to provide all the requested documentation required by the Bankruptcy Trustee your bankruptcy filing may be dismissed. Mistakes in your documentation can cause delay or a dismissal. If you do meet the income requirements there are additional criteria you have to meet such as:
- You must take a credit counseling class 180 days before filing for bankruptcy.
- If you have enough income to pay some of the debt you may be considered for a Chapter 13 bankruptcy.
Although it is true that after you file for bankruptcy you can purchase a house or a car or apply for a credit card, what debtors don’t realize is that you will be offered a high interest rate due to filing bankruptcy which can lower your credit score by up to 200 points. It can take up to 5 years before you can achieve a good credit score. Here are 3 tips to ensure approval of your bankruptcy filing:
- Do not make any large purchases before filing because this will decrease your chances of being approved.
- Don’t transfer credit card balances or make payments on any debt because this may decrease your chances of being approved.
- Don’t apply for any loans or open any new credit accounts.