For many people there's no clear-cut answer to the question Should I declare myself bankrupt? Much will depend on your circumstances. You'll want to know what's at stake. What will you lose? What could you keep? A good place to start is by taking a look at the personal bankruptcy exemptions for the state where you live.
What are personal bankruptcy exemptions?
There are two types of personal bankruptcy exemptions:
1. Debts you cannot avoid paying
2. Assets you are allowed to keep
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Debt personal bankruptcy exemptions
If you were thinking that by declaring yourself bankrupt you can forget about paying back every last cent you owe, Think again.
Debts you will have to pay even if you file bankruptcy include money you owe as tax, child support payments, alimony and school loans. However, there are even exceptions to this rule, so it's essential that you are fully informed of your options.
Asset personal bankruptcy exemptions
Asset exemptions include your home, your car, furniture and household items, clothing, pension funds, insurance, tools and jewelry. The exact details vary from state to state. Often, there will be a maximum value for a given asset. For real property used as your main place of residence, this is your homestead exemption. In California, this can be up to $175,000. In Massachusetts, it's $500,000. But in Wyoming your maximum homestead exemption is just $10,000.
The good news is that whether you live in Texas or Ohio, Tennessee or North Dakota, filing for bankruptcy does not strip you of everything you own.
Federal and state personal bankruptcy exemptions
Sixteen states give you the choice of using federal bankruptcy exemptions instead of state exemptions. This may or may not work to your advantage, so it's important that you compare the asset values before you decide. You cannot pick and choose between federal and state; you either use all state exemptions or all federal exemptions.
Joint bankruptcy filing doubles your exemptions
With federal exemptions, and most state exemptions, you can double your allowance at a stroke if you file bankruptcy jointly with your spouse. While this may sound like a great idea, once again it's essential you take into account the respective merits of filing jointly or alone.
Sometimes it pays you not to rush into filing personal bankruptcy
Keen as you may be to sort out your finances, it may be in your interests to hold your horses. Exemption values may be fixed, but asset values can change significantly in a matter of months. Maybe your car is worth $7,000 today, but your exemption cap is $6,500. Wait long enough and your car's value could drop to within the limit.
Declaring personal bankruptcy without an attorney
As stated above, before you file for personal bankruptcy, it's imperative you obtain accurate, up-to-date information, preferably from an attorney. Good legal advice will often save you far more than it costs.
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