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6 key things you should know when considering bankruptcy

Think about declaring bankruptcy? If so, be sure you know that:

1. You can choose between Chapter 7 and Chapter 13. These are very different, in that Chapter 7 uses asset liquidation and Chapter 13 uses a repayment plan. You may not be eligible for both.

2. Your credit is going to take a hit. This can last for years. That being said, remember that not paying your bills because you didn't use bankruptcy and you can't afford to make your monthly payments will also have a massive impact on your credit.

3. You can't get rid of all types of debt. For instance, student loans are only able to be discharged in extreme circumstances and child support orders can't be discharged at all.

4. Bankruptcy isn't free. Yes, funds are tight; if they weren't, you wouldn't be filing in the first place. But there are fees that go along with bankruptcy, so be sure you know how they work.

5. If you file, the records stay public. Other people can learn a lot about your financial situation, if they want to do so.

6. Bankruptcy gives you a fresh start, but you still may need to make life changes. Even with Chapter 7, with the slate wiped clean, you must consider what decisions you made or what circumstances led to the need to file in the first place. You can then take positive action to improve your financial situation and avoid filing again.

These are six key things you should know, but the process is complex and this is by no means a complete bankruptcy guide. Be sure you really look into all aspects of filing for bankruptcy and understand what legal steps need to be taken.

Source: The Simple Dollar, "Seven Things to Know When Filing for Bankruptcy," Carrie Smith, accessed Dec. 20, 2016

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