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Deciding Whether Bankruptcy Is Your Best Choice Requires Thought and Expertise

November 29, 2010

One of the most common parts of our work as Rancho Cucamonga individual bankruptcy lawyers is counseling clients on whether bankruptcy is the best idea in the first place. Many clients are anxious to avoid bankruptcy if they can, so they want a professional to help them decide or confirm what they already know. In other cases, they have specific needs that they want to be sure will be met before they take the plunge. This post is an attempt to address this question, looking at some common questions about whether to file and reasons to file. But because no blog post is a substitute for a detailed review of your finances, you are also invited to contact us to set up a free consultation on your specific situation and needs.

The first thing to consider, of course, is whether you have enough debt for bankruptcy at all. As our partner and Norco consumer bankruptcy attorney Vincent Howard has written, you can estimate this informally by comparing your household expenses to your debt. Write down your expenses for basics like food and housing, including only debts for your home and car payments -- not debts from credit cards, medical bills or other expenses. Then, calculate how much of your income is left over. Using that leftover disposable income, can you pay your debts back within three years? If not, you should consider bankruptcy.

However, it's important to realize that bankruptcy is not a solution to every type of debt. Certain debts cannot be erased in bankruptcy court. These include debts for child support or spousal support (alimony); tax debts; criminal penalties or fines; and most student loans. Filing for bankruptcy can still help you deal with those debts, by eliminating debts elsewhere in your life and freeing up money. But you will still be required to pay them in full.

If you're considering bankruptcy to deal with an unsustainable mortgage loans, you should know that mortgages get slightly different treatment from other debts. In a Chapter 13 bankruptcy, in which you make a plan to repay your debts more slowly, the court is permitted to reduce your debt on most loans secured with physical property. That is, if you are repaying a car loan and the value of the car has gone down, the court may reduce the debt to the current value of the car. That's also true for second homes, boats and any other secured property except your primary home. Homeowners may still find bankruptcy helpful, because it frees up money to make mortgage payments, but it cannot change the repayment terms of your mortgage.

Howard Law PC offers legal options beyond bankruptcy to clients struggling with debt or other financial problems. Homeowners trying to stay out of foreclosure can speak to our foreclosure defense attorneys, and people with unsecured debt may benefit from an out-of-court debt settlement. But if you believe bankruptcy is your best choice, you should talk to our Ladera Ranch personal bankruptcy lawyers. to confirm that and make a plan. We help our clients built the most complete bankruptcy we can, which helps them ensure that they are protected from all of their debts and their creditors, as well as from mistakes that could get their cases thrown out of court. Even after debts are discharged, we counsel clients on the tax and credit changes they can expect as they start to rebuild.

Howard Law offers free, confidential case evaluations, so you can talk to us at no risk or obligation. To set up a meeting, send us an email or call 1-800-872-5925 today.