If you’ve told your friends or family members that you’re considering bankruptcy, you might have gotten some pretty negative feedback. They, along with professionals like credit counselors or financial advisors, might be telling you that bankruptcy should only be used as a very last resort. But can bankruptcy sometimes be the right strategy?

One thing you need to remember is that bankruptcy can provide protection for important assets like your home and pension plans. It seems that many people feel obligated to do every single thing they can in order to pay their debts and avoid bankruptcy. Unfortunately, this may include putting your house on the line and even using retirement funds to pay off your financial obligations.

For example, many families use a home equity loan to pay off credit card debt. The loan may be pretty big, even in the tens of thousands. The sad thing is that by taking a home equity loan you will actually be using up your precious equity when you really didn’t have to. If you take out a $40,000 home equity loan in order to pay for credit card debt, you will still have to pay back the loan to the bank. If you don’t, your house is on the line.

If you had filed for bankruptcy protection, your home would most likely have been protected under your state’s homestead exemption. For example, some states like Florida have an unlimited exemption, which means that your primary home is protected no matter how much the house is worth or how much debt you have.

Likewise, many families dip into their pension plans unnecessarily (or even empty them completely) in order to pay for their credit card debt or other unsecured debts. The fact that they are unsecured means that there is no collateral to be taken. However, you have just used up valuable resources that would have most likely been protected under Chapter 7 or Chapter 13 bankruptcy.

Now we’re not saying that bankruptcy is a walk in the park, or that you should take your financial obligations lightly and avoid paying them simply because you don’t feel like it. However, sometimes bankruptcy, even with its long-term ramifications, should be considered earlier than you think in order to protect your most valuable assets.

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If you are having debt problems, you probably assume that your husband or wife or automatically responsible for any financial obligations in your name. You may be surprised to learn that this is not the case in most situations. Unless your spouse cosigned for the debt, your husband or wife would not be responsible depending on where you live.

In most states, you are not responsible for your spouse’s debt obligations unless you cosign a loan or a credit card. However, some states have different laws, so you may be responsible for financial obligations belonging to your husband or wife.

There are nine states known as community property states. These include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. If you live in one of these states, the above rules do not apply. In community property states, all of the community property (which is the property and income obtained by either spouse during the marriage) is vulnerable to creditors.

There are some exceptions, such as gifts and inheritances. Nevertheless, consumers who live in one of these states should understand that both spouses may be responsible.

Some of the other things you need to keep in mind if you’re considering filing for bankruptcy, whether knowingly or singly, is what kind of bankruptcy you should file.

Chapter 7 bankruptcy is known as straight bankruptcy or liquidation because it attempts to eliminate recounts while selling off any nonexempt assets that you own. Chapter 13, on the other hand, establishes a payment plan for several years after which the remaining balances on your debts are wiped out.

One of the advantages of Chapter 13 is that it allows you to catch up on payments, which is especially useful when you’re behind on your mortgage payments.

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The thought of declaring bankruptcy often sends a chill down many people’s spines because of the negative consequences that can come when filing. However, sometimes declaring a Chapter 7 bankruptcy can be the smart thing to do. This is because the liquidation of your assets can help pay off debts that you would otherwise not have been able to handle.

It’s true that most individuals who declare bankruptcy do not have many assets to speak of. However, in some cases a person may have an investment property that can be used to pay off other debts which have accumulated over time.

For example, let’s say you own a house with a $100,000 mortgage, and you have built up an equity of about $20,000. You could sell this home for the full value and keep $20,000 for yourself in order to pay off other bills such as credit card debts, or any other financial obligations that have been overwhelming you.

If you were behind on your mortgage payments for this investment property, the bank could foreclose on the property. Granted, this can take several months to accomplish, but eventually the mortgage company can take over house because you have not made payments. Chapter 7 bankruptcy will not save your house from the mortgage company, because you still have to continue to pay off your house payments on a monthly basis. (Chapter 13 can actually help you restructure your mortgage if you are behind on payments, but that is another matter for a different article.)

What happens when they finally foreclose on the house? You could lose your entire investment and still not have covered your other debts. Bankruptcy can stop foreclosure before it happens and allow you to liquidate your assets. This can not only help you cover other debts including unsecured debts like credit card bills, but you could actually put money in your pocket depending on the amount of equity you had in the home versus the amount of debt you are trying to pay off.

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For more information please visit: http://www.floridalawattorney.com