Bankruptcy is a legal concept that most folks have general ideas about. That starting point, however, doesn't necessarily prepare them for figuring out whether it's an option and if they should explore it. Take a look at how bankruptcy attorneys typically cover these concerns.
Are You Eligible?
It's worth determining if you even have the right to file based on your circumstances. Usually, an individual or a couple will automatically be allowed to file if their income is less than half the median income for the state they live in. Otherwise, there may be a more involved process for proving to the court that you need relief.
What Are Your Bankruptcy Options?
Bankruptcies fall into two categories: liquidation and restructuring. If you go the liquidation route, you can expect the court to sell all of your non-essential assets and distribute the proceeds to your creditors. A restructuring plan, on the other hand, gives you the chance to have the creditors take a reduced amount in exchange for paying what you can in between three and five years.
Three groups can file for bankruptcy: individuals, businesses, and farms. Note that each class has its own quirks, mostly in the restructuring process. You can have a better idea of your option if you work with a bankruptcy attorney.
Are There Alternatives?
One alternative worth looking at is whether your creditors might be willing to negotiate. This typically works best when someone has a handful of creditors who hold large amounts of their debts. A breakthrough with one or two of them may significantly reduce their obligations. Also, restructuring your debts outside of bankruptcy will leave going to court as a later option if you can't pay or if your creditors renege.
It may be possible to consolidate your debts under a single loan. Bear in mind this means more borrowing and a new payment schedule so it's not a wise choice if you won't have the resources needed to pay off the new loan. In a truly bad financial situation, it may be simpler to just bite the bullet and file for relief.
Have You Recently Filed for Bankruptcy?
The final factor is how long it has been since you've previously filed for bankruptcy. If this is your first time, then this is a non-issue. Otherwise, folks who've done liquidation before will have to wait 8 years. Restructurings can be done every two years if you've received a discharge. There are also special circumstances where you can file for restructuring immediately after you've liquidated assets and received a discharge.