Deciding whether to file for bankruptcy

Before filing a bankruptcy case, make sure it's the best way to deal with your financial problems. In a typical consumer case, most of the attorney's analysis involves comparing bankruptcy with other alternatives.

To make such a comparison, you need to get all the facts. Otherwise, unknown property, such as the right to a tax refund, may be lost in bankruptcy; major debts may turn out to be unaffected because they cannot be discharged or because there are liens on property; or property might be incorrectly valued and, as a result, lost to creditors.

To assess whether bankruptcy will help, take the following steps:

- Learn the advantages and disadvantages of bankruptcy. While the benefits can be great discharge of most debts and an automatic stay, or stop order, against creditors there are disadvantages, particularly the possibility of losing property.

- Determine whether bankruptcy will get rid of your debts. Bankruptcy doesn't eliminate all debts. Debts that cannot be discharged include taxes, alimony and child support, and student loans.

- Do a budget analysis. You need to calculate ongoing expenses and income to determine whether a bankruptcy will solve your debt problem or if the problem will continue.

- Consider the effect of bankruptcy on your spouse. While he or she will not be responsible for your individual debts, your spouse may have to pay for any joint debts and joint property may be affected by the bankruptcy.

- Consider alternatives to bankruptcy. Bankruptcy is only one way to deal with overwhelming debt. Another option is pursuing loan modifications with mortgage companies and other lenders and credit card firms. Or you may just have a few debts and have strong defenses against them. Then the best avenue might be either litigation or settlement outside of bankruptcy court.

Source: National Association of Consumer Bankruptcy Attorneys