Submitted by Jen Jones on Sat, 06/13/2009 - 10:01pm
In many circumstances, declaring bankruptcy at the right moment is an important tactical move to rescue a difficult financial situation and it is deployed precisely to avoid a worst case scenario. Still, bankruptcy is a big step and it pays to consider it rationally and strategically. For some people in certain situations, declaring bankruptcy just doesn't make sense. If your debt is small, for instance: if you owe an amount small enough that you could potentially take care of it, without unreasonable effort, simply by budgeting carefully for not more than 2 or 3 years, then bankruptcy may not be for you. That one is a bit obvious.
But, what if you do have considerable debt, but you also have considerable assets?
This may or may not be a problem. If all of your assets are "exempt", you can file bankruptcy and lose nothing. That is, exempt assets are all the stuff you get to keep, even if your file bankruptcy. Every state allows you to exempt and therefore keep certain types and amounts of assets. In most states, the amount of stuff you can "exempt" is not insignificant. Since exemption laws vary from state to state, you would be wise to check with a good bankruptcy attorney in your state to find out what you can exempt before you make any kind of a move. And, as in incentive for you to do so, you need to know this: In most cases, people who file bankruptcy get to keep everything they own, and therfore lose nothing.
Seem odd? We understand completely. One of the biggest myths about bankruptcy is that, if you file, you will lose everything. But a myth is myth, as any good bankruptcy attorney can prove to you.
So, let's say you have checked and now you know what you can and cannot keep if you file bankruptcy. And, let's say you are one of the few people who happen to have a lot of "non-exempt" assets. What should you do?
You have 2 choices:
It might be a good idea to sell those "non-exempt" assets, especially if selling them could take a big bite out of your debts. Even if you can't pay it all, if you can make a dent and they are assets you would lose in a bankruptcy anyway, even a small decrease in debt load can sometimes offer considerable relief to a strained debtor.
But what is you need to file bankruptcy but can't afford to lose those "non-exempt" assets? You may well be able to file what is known as a "Chapter 13" bankruptcy. A Chapter 13 bankruptcy filing allows you to pay out, over the course of your case, the amount equivalent to the amount your assets exceed available exemption limits.
So what about exempt assets? Should you buy some time by selling those?
Warning! Think long and hard before you sell exempt assets. Do NOT let creditors persuade (read: bully) you into selling these. Here's a pretty bad worst case scenario: You're in too much debt, you have a huge monthly mortgage payment, but you have home equity. The home equity is less than the exemption allowed by your state. But you really don't want to declare bankruptcy, so you put it off for a while, your situation gets critical and in the end you can't handle it anymore. So you decide to sell the house. Only by the time you do, the housing market is down, you don't get as much as you thought you would get and what you have left over doesn't cover your unsecured debt. You end up having to declare bankruptcy anyway, only now you don't have anywhere to live! Sounds like a last ditch.
Although the law varies by state, most places will let you keep your home (up to a certain value), pensions, 401k accounts, basic home furnishings, your car and other miscellaneous money and property. If you think bankruptcy is looking like a good solution, why would you sell assets that are already protected by exemption laws?
Here's another worst case scenario: You owe a close relative a lot of money, and you are thinking that if you declare bankruptcy you'll never be able to pay her back. So you sell some assets, pay the debts, and then declare bankruptcy. If you had consulted a lawyer before going ahead with the sale, he might have warned you about what happens next: your bankruptcy trustee takes the money back and uses it to pay your unsecured creditors! Lose-lose (for you and your relative, anyway.) If there's a good likelihood of declaring bankruptcy, it's best to speak with a lawyer who can counsel you about these types of situations. If you're not there yet but you're thinking about selling assets to cover debts, make sure they aren't exempt assets. There's a reason certain assets are exempt: you will need them to start over.
The bottom line: If the asset is exempt, do not sell it. At least do not sell it, or even put it up for sale, before you consult with a knowledgeable and experienced bankruptcy attorney. Whether you end up filing bankruptcy or not, you need to know how much of what you own can be protected.
In North Carolina, you have available to you such a lawyer. The Law Offices of John T. Orcutt. John and his staff of attorneys have helped over 30,000 families. They may well be able to help you to. The Law Offices of John T. Orcutt offer a totally free and confidential initial consultation at 4 different locations: Raleigh, Durham, Fayetteville and Wilson. During normal business hours, you can set up an appointment by calling toll free to +1-833-627-0115. At night and on weekends, you can set up your own appointment "online" by visiting his website at www.billsbills.com
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