Whether or not to go bankrupt is a highly personal decision. It provides a clean slate and a chance to begin rebuilding your financial future. On the other hand, bankruptcy damages your credit for a long time. It also carries an unfair stigma that can cause a very real emotional reaction in those who choose to file. Sorting through your options with a qualified bankruptcy attorney is the best way to make a reasoned decision. Here are a few things you should consider.
How Much Debt Do You Have?
If your debt load is relatively low, bankruptcy may not be the best solution, especially if your income is high enough to absorb your debt. You might be disqualified from filing for Chapter 7 bankruptcy, which wipes out most types of debt, if your disposable income is high. Chapter 13 bankruptcy restructures your debts, which means that you are still responsible for paying them, but damages your credit as severely as a Chapter 7. If you have the means to pay your debts, even if you have to tighten your belt for a while, it is usually best to pay them.
How Far Behind Are You?
If you are in imminent danger of losing your home or car, filing bankruptcy provides a stay that prevents your creditors from taking further immediate action. You will still need to work out a reaffirmation of debt (if filing Chapter 7) or choose a Chapter 13 bankruptcy in order to catch up and avoid foreclosure or repossession, but filing buys you some time.
If you are not very far behind in payments, however, you may be able to negotiate with your creditors. In general, the sooner you make contact, the more willing creditors are to work with you, although this obviously varies by creditor. Still, even very delinquent payments do less damage to your credit report than a bankruptcy, and they fall off of your report in 7 years instead of 10. If you are able to make payments but not fully catch up, find out if your creditors offer any sort of program to help.
What Kinds of Debt Do You Have?
Some debts, such as child support, back taxes, and student loans, are not dischargeable under a Chapter 7 bankruptcy, although some of them may be eligible for inclusion in a Chapter 13. If your debt consists mostly of obligations that will not be wiped out in bankruptcy, then filing may not make sense. On the other hand, if you have a mix of dischargeable and non-dischargeable debts, wiping out your dischargeable debts may free up enough money in your budget to pay your non-dischargeable obligations.
Are You Judgment Proof?
For most debtors, wages can be garnished and bank accounts can be seized in order to satisfy a court judgment. In some cases, however, a debtor is judgment proof. If you have no assets and either have only protected income such as Social Security or a disability pension, or very low wages, a judgment against you would be uncollectible. In this case, it might not make sense to file for bankruptcy.
What Are Your Future Financial Goals?
If you want to buy a house someday, keep in mind that judgments can haunt you well into the future. Most mortgage companies expect your past credit obligations to be satisfied before they will extend credit to you. In addition, financial pictures can change, and you might find yourself paying out a significant portion of a new high salary to satisfy an old judgment. A bankruptcy guarantees you a fresh start without the concern that old debts could come back into the picture.
On the other hand, many debts never make it to judgment. They are sold off to collection agencies, who run your credit and make a decision on whether it is worth trying to collect. In this case, you can often settle your debt for pennies on the dollar, and the records will be erased from your credit report after 7 years.
Whether or not to file for bankruptcy is an extremely personal decision based on a wide range of individual financial factors. Only a qualified bankruptcy attorney can help you sift through the possible scenarios and make the decision that is the right choice for you.
If you are ready to take the first steps toward financial freedom, call the Law Offices of David M. Offen today at (215) 625-9600 to schedule your free initial consultation. We’re here to help you every step of the way.