How Bankruptcy Attorneys Evaluate Your Financial Situation

How Bankruptcy Attorneys Evaluate Your Financial Situation

Filing for bankruptcy is a significant step that requires careful consideration of your financial situation. Bankruptcy attorneys play a crucial role in helping you navigate this process. To determine the best path forward, these legal professionals will evaluate your financial circumstances thoroughly. In this article, we will explore how bankruptcy attorneys assess your financial situation and how this evaluation shapes the advice they offer.

1. Review of Your Income and Employment Status

One of the first things bankruptcy attorneys will examine is your income and employment status. Understanding how much money you bring in each month is critical to determining your ability to repay your debts, as well as which bankruptcy chapter (Chapter 7 or Chapter 13) might be suitable for your case.

  • Chapter 7 Bankruptcy: If your income is below a certain threshold, you may qualify for Chapter 7 bankruptcy, where many of your unsecured debts can be discharged.
  • Chapter 13 Bankruptcy: If your income exceeds the limits for Chapter 7, the attorney may recommend Chapter 13, which involves creating a repayment plan to pay back some or all of your debts over three to five years.

Your attorney will carefully analyze your income to ensure that the chosen bankruptcy chapter aligns with your financial situation.

2. Evaluation of Your Debts

Another critical component of the evaluation process is reviewing your debts. Bankruptcy attorneys will categorize your debts into two main types: secured and unsecured.

  • Secured Debts: These debts are backed by collateral, such as mortgages or car loans. If you default on these debts, the lender can seize the collateral.
  • Unsecured Debts: These include credit card balances, medical bills, and personal loans. These debts are typically eligible for discharge in Chapter 7 bankruptcy, depending on your situation.

The attorney will assess whether any debts are non-dischargeable, such as student loans or tax debts, and how they will affect your bankruptcy case.

3. Asset Assessment

Bankruptcy law allows you to protect certain assets, called exemptions, when filing. Your attorney will work with you to identify and value your assets, including:

  • Real property: Your home or other real estate holdings
  • Personal property: Cars, jewelry, household goods, and more
  • Financial assets: Bank accounts, retirement accounts, investments, etc.

By evaluating your assets, the attorney will ensure that you retain as much property as possible, in accordance with the exemption limits, and determine whether a bankruptcy filing will affect your assets.

4. Consideration of Your Expenses

In addition to reviewing your income, bankruptcy attorneys will analyze your monthly expenses to determine whether you can afford to make a repayment plan in Chapter 13 bankruptcy or if Chapter 7 is a more viable option for discharging your debts.

They’ll look at:

  • Necessary living expenses: This includes rent or mortgage, utilities, food, transportation, and healthcare.
  • Optional expenses: This includes discretionary spending like entertainment or luxury items.

By assessing your expenses, the attorney ensures that you are not being forced into a repayment plan that you cannot reasonably afford.

5. Examination of Past Financial Behavior

Your attorney will also take a close look at your financial history, including whether you have made recent transfers of assets or incurred debts right before filing for bankruptcy. This is particularly important because bankruptcy courts can review these actions, and any fraudulent activity may jeopardize your case.

For example, transferring assets to friends or family members or making large purchases before filing may raise red flags. Your attorney will help you navigate any potential pitfalls related to your past financial behavior.

How Bankruptcy Attorneys Evaluate Your Financial Situation
How Bankruptcy Attorneys Evaluate Your Financial Situation

6. Reviewing Your Credit History

While bankruptcy attorneys don’t necessarily rely on your credit score to assess your situation, they may request a credit report to help identify outstanding debts and gain insight into your financial behavior. A credit report can provide valuable information on creditors, balances, and payment histories, which helps the attorney form a complete picture of your financial obligations.

7. Long-Term Financial Goals and Recovery

Beyond the immediate impact of filing for bankruptcy, your attorney will consider your long-term financial goals and recovery options. They will discuss your future income potential, your ability to rebuild credit, and how to avoid future debt. The attorney will offer advice on how to start fresh financially after bankruptcy, which could include budgeting, debt management strategies, and credit rebuilding techniques.

8. Consultation with Bankruptcy Trustees

In some cases, bankruptcy attorneys will consult with trustees—court-appointed officials who oversee bankruptcy cases. Trustees review your bankruptcy petition and verify the information you provide. They help ensure that your financial evaluation is accurate and that you’re not hiding assets or debts. The attorney’s role is to ensure everything is in order and help you navigate any questions the trustee may have.

Conclusion

The process of evaluating your financial situation is thorough and crucial in determining whether bankruptcy is the right option for you. Bankruptcy attorneys assess everything from your income and debts to your assets and past financial behavior. By working with a skilled attorney, you ensure that your case is handled effectively and that you make the best possible decisions for your financial future. Whether you’re seeking debt relief or aiming for a fresh start, understanding how your attorney evaluates your finances helps you be better prepared for the bankruptcy process.