Is bankruptcy right for you?
Before filing, it is very important to determine if bankruptcy is really the best option for your unique financial situation.
The decision to seek bankruptcy protection is not one that should be made lightly. It isn’t a “quick fix,” nor is it a proverbial “get out of jail free” card. Bankruptcy is ideal for those whose financial situation would only be manageable in the future once very drastic action is taken. An experienced bankruptcy attorney is in the best position to tell you if bankruptcy is the proper course of action for you, but if you are in dire financial straits, it is good for you to have some idea about whether the process might help you and about the potential downsides.
What types of debt do you have?
Though bankruptcy is a very effective tool for the discharge (Chapter 7) or repayment (Chapter 13) of many debts, it isn’t all-inclusive. Generally speaking, unsecured debt like credit cards, medical bills, non-student loans and other lines of credit can be included in a bankruptcy plan.
There are some types of debts that cannot be discharged through bankruptcy, however. These may include:
- Recent tax debt (typically incurred within the past three years)
- Student loans (unless “undue hardship” can be shown as to why the debt cannot be repaid now or in the future)
- Child support
- Spousal support
- Judgments brought about by willful or negligent actions that harmed another person (for example, civil suits related to damages caused by drunk driving or criminal activity)
Do you understand the consequences?
Bankruptcy, helpful as it may be at stopping creditor harassment, discharging debt, preventing foreclosure and giving you a fresh financial start, comes with serious consequences now and into the future. One such consequence is the filing itself. Filing fees can run into the hundreds of dollars, and there are also charges for mandatory credit counseling and education programs. These are necessary expenses, but they are a hardship for some people already struggling with unaffordable monthly payments or who are being threatened with foreclosure, repossession or utility shut-offs. It may be possible in some instances to waive the fees, but that isn’t always the case.
Another serious consequence is the huge “ding” to your credit rating. It is common for a bankruptcy filing to lower your credit score by 100 or more points. Granted, if you are dealing with accounts in collections, late payments, repossession, foreclosure or wage garnishment, there is a good chance that your credit has already taken a big hit. Still, it is something to be aware of.
Keep in mind that a Chapter 7 bankruptcy filing can stay on your credit report for up to 10 years, and a Chapter 13 filing for up to seven years, so the impact will be felt for some time. In addition, a Chapter 13 filing will involve a repayment plan over a period of three to five years, so you need to be willing to make a lengthy commitment to decreasing your debt.
None of this is meant to dissuade you from learning more about bankruptcy or from seriously considering it when it is a good fit for your unique financial situation, but it is important to make a truly informed decision. To learn more about what a bankruptcy filing could do for you, contact the Huntsville Law Offices of John Dezenberg online or by calling 256-822-2175.