As the great recession has grown in both size and duration over the past several years, more and more Americans have been turning towards bankruptcy law in order to prevent themselves from becoming completely insolvent. It's a drastic step, one that has many stigmas attached to it, but worth it if the alternatives are worse. After all, there's no scarlet letter attached to bankruptcy law anymore; too many people of all classes have been through it, and someone who's declared bankruptcy is as much a part of society as anyone else.
It's important to note that different states have different statutes and rulings under bankruptcy law, so what goes in Rhode Island might not be good in, say, North Dakota or California or Arkansas. So under all circumstances you need to speak to a local, preferably experienced lawyer before going through the bankruptcy law route. That said, there are some general questions that most people who file for bankruptcy will want to ask.
First is, "Do I have to be completely broke before filing under bankruptcy law?" The answer to that in most states is "no." If you're a debtor, there are certain assets that you still have a right to hold onto even in the face of your massive debts. Going to bankruptcy court earlier rather than later makes it more likely you'll get to hold onto those assets, as opposed to liquidating them to pay off your creditors.
Second is the question, "If I file for bankruptcy, will I lose my house?" Unfortunately, the answer to that one is "maybe" trending toward "yes." The instances where you won't lose your house are if you've been able to keep up mortgage payments and have been able to put together a comprehensive payment schedule going forward. If you've done that - done the paperwork and due diligence and can show as much in court - then you have put yourself in a favorable position when going through bankruptcy law proceedings.
"What about my credit?" Again, the answer is "it depends." If you've been able to keep up with certain bills and can show that you've made good faith efforts to pay off your creditors, then your credit score might be only marginally affected. But beware that a bankruptcy filing will stay on your credit report for a decade.
The bottom line is that it's always best to know the pros and cons before trodding down a given path. With bankruptcy law, that's no different than anything else.
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