Ask The Money Coach

A number of celebrities have made headlines in recent months for having enormous debts and tax problems or because they’ve filed for bankruptcy protection. Actor Eddie Murphy’s ex-wife, Nicole, reportedly owes millions of dollars, including five IRS tax liens of just under $850,000. Singer Toni Braxton recently went bankrupt for the second time, with debts between $10 million and $50 million. And rapper Xzibit – who is said to owe nearly $1 million to the IRS – also headed into bankruptcy court in December 2010, after two previous attempts to wipe out his debts failed.

But celebrities with huge financial woes aren’t the only ones going broke. More than 1.53 million Americans filed for bankruptcy protection in 2010, a 9% increase over 2009 levels, according to the American Bankruptcy Institute. With credit card debt and unemployment running high, experts predict that consumer bankruptcies will continue to rise in 2011 – following a trend that’s been growing since 2005.

If you or someone you know is contemplating bankruptcy, here are five important questions you must ask before heading into court to seek financial relief:

1. How much will it cost me?
Most people who file bankruptcy use a lawyer, and doing so isn’t cheap. Expect to pay anywhere from $1,500 to as much as $4,000, depending on the complexity of your case, where you live and the experience of the attorney you choose.

2. What type of bankruptcy should I file?
The form of bankruptcy you file plays a role in your costs and the overall process. Chapter 7, also called a “straight bankruptcy” or a “liquidation,” is the most common form of personal bankruptcy. To file Chapter 7, you must meet an income test and a means test imposed by the court. A Chapter 13 bankruptcy is known as a “wage earner’s plan.” You have to have a job and you must show the court that you will be able to repay at least some of your debts over a period of three to five years. Those who want to save their home from foreclosure should file Chapter 13, not Chapter 7. Read the rest of 5 Questions You Must Ask Before Filing Chapter 7 or Chapter 13 Bankruptcy on BlackVoices

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