Filing for bankruptcy is a personal decision and not an easy one too. Bankruptcy has serious implications in life. Bankruptcy will have an adverse impact on your life if used for the wrong reasons. This explains why many people think of bankruptcy as a negative choice. On the flip side, when bankruptcy is used for the right reasons, and the timing is right, you will enjoy relief in managing your finances. Bankruptcy, in this case, helps give you a fresh financial start and reduces anxiety and stress occasioned by overwhelming debt. Below are a few reasons why you should consider filing for bankruptcy.
1. You Have Excessive Credit Card Debt
Credit card debt poses a significant negative financial impact if misused. Credit card debt compounds over time. The high-interest rates make it difficult for many to reduce the principal on their credit card debt.
Many apply for more credit card debt or other unsecured loans to reduce the debt burden on their cards. While it seems like a viable short-term solution, you cannot ignore the long-term impact of getting deeper into debt. Most realize they are in trouble when they cannot keep up with the payments.
It is worth pointing out that contrary to popular belief, not all credit card debt is due to a lack of responsibility in managing your finances. You can encounter certain hardships occasioned by circumstances beyond your control, like inflation, which drives up your expenditure. Thus, opting for credit card debt to offer relief can quickly change from a short-term solution to a long-term problem.
When you successfully file for bankruptcy, the courts automatically stay debt collection. You can then repay your debt through a repayment plan.
2. You Need to Prevent Foreclosure on Your Home
To many, homes are worthwhile investments. The thought of losing said property while having paid a portion of the mortgage payments is tough. Creditors will exercise their rights on the property through foreclosure when you fail to honor your mortgage payments.
When foreclosure on your home is inevitable, filing for bankruptcy will help you avoid it. Bankruptcy proceedings will result in an automatic stay. The bank is prohibited from proceeding with collection actions against you. Further, you get an opportunity to catch up on missed mortgage payments and save your home.
Chapter 13 is the best way to protect your home. Under Chapter 13 bankruptcy, you create a payment schedule with your creditors to resolve your debt. Further, you will need to meet the terms set by the court to release yourself from debt. Notably, you will be expected to pay off unpaid debt or the accumulated late payments over the course of the repayment plan to avoid losing your home.
3. Preventing Vehicle Seizure
You risk losing your car to repossession after falling behind on your car payments.
Note: You are not entitled to a notice before repossession agents take your car. The lender can exercise his/her discretion by arranging to have your vehicle repossessed without your permission or informing you in advance when you miss a payment.
However, once the car is repossessed, you are entitled to written notices on how to get the vehicle back.
You can prevent repossession of your car through bankruptcy. If granted, bankruptcy will stop the creditor from repossessing your vehicle. You will pay the outstanding sum through a repayment plan until the vehicle’s original cost and any additional arrears are paid off. In other instances, you could be required to pay the car's present value at a reduced interest rate. Details will be included in the repayment plan.
4. Job Loss
Economic market conditions form the basis of business decisions that impact employees. A growing economy translates to growing company fortunes. The benefits trickle down to the employees through pay increases, bonuses, and other perks. It is only natural to improve your lifestyle after receiving these benefits. You could upgrade your car and relocate to a residence matching your income bump.
What happens when the economy is on a decline? Job losses.
The first expense issue companies target to protect their profit margins is employee pay and benefits. Most companies opt to let go of their staff to reduce the wage expense in their books. Losing your job with added obligations you accumulated post-job loss can be frustrating. It is easy to fall behind on honoring your commitments as you reorganize yourself.
Bankruptcy proceedings help you reorganize your finances without pressure from creditors. You get time to secure a new job and pay off your debt while meeting your day-to-day obligations.
5. You Have Excessive Medical Bills
Medical bills have a significant impact on your finances. Additionally, medical costs could hurt you in various ways. Most notably when the bills compound and you are in an emergency situation. You are expected to pay the rising costs but cannot earn an income since you cannot work.
Further, having insurance coverage is not a guarantee you are secured. You could elect higher deductibles to keep your monthly premiums low. This approach proves expensive when faced with a medical issue that requires significant finances to treat. You thus end up with substantial out-of-pocket expenses, which could accumulate and end up as medical debt.
When you have medical debt, you can expect the medical facility to seek payment. First, the facility will issue late-payment notices. Eventually, the medical provider will sue you to recover the expenses in a money judgment. You risk facing a bank levy, placement of a lien on your real estate, or wage garnishment. Some of these consequences are irreversible in bankruptcy proceedings.
Medical facilities could also opt to use debt collectors to recover the arrears. Unfortunately, debt collectors will not care about your condition. Their business is simple: debt collection. This would make an already challenging recovery devastating.
You have two bankruptcy options to deal with medical bills. You could either file for a Chapter 7 or Chapter 13 bankruptcy.
Note: Medical debt is unsecured.
6. You are Going Through a Divorce
Divorce has significant financial implications. Most couples will find it hard to maintain their current lifestyle after divorce. A single income is insufficient to fund a lifestyle supported by two incomes through a shared plan. Additionally, there are the shared liabilities and shared expenses accrued during the marriage.
Further, divorces result in additional expenses like alimony, divorce proceedings costs, and child support. All these have an impact on an individual’s finances.
Bankruptcy is a viable solution to help delay the distribution of assets until the bankruptcy proceedings are concluded. However, bankruptcy does not stop divorce, custody, or support actions.
Most couples file for Chapter 7 bankruptcy. It wipes off qualifying debt, unpaid bills, and personal loans without the need for a repayment plan. It is also advantageous since the whole process takes three to four months: a welcomed option considering divorces can turn ugly.
Chapter 7 bankruptcy allows you to select the assets you need while electing those you do not want to keep as liquidation options. Thus, you can safeguard assets that are of interest to you.
Talk to your attorney to find out how you can benefit from bankruptcy in a divorce process.
7. Stopping Possible Eviction by a Landlord
Whereas bankruptcy offers reprieve in most post-judgment collection actions, It does not cover all. One such action is tenant evictions. A residential tenant’s bankruptcy filing does not stay an eviction order obtained before the bankruptcy was filed.
However, you can still enjoy the benefits of bankruptcy should you file the request before an eviction order is granted. If successful, the bankruptcy grants a temporary stay of eviction proceedings. This will give you time to reorganize your finances, save up for the past due rent, enter into a repayment plan with your landlord and settle the pending arrears.
Your landlord could also challenge the temporary stay by filing a motion to lift the stay. Generally, the courts will grant the request unless you have a good reason why the court should halt the eviction.
Further, if the landlord believes you are using illegal drugs on the premises or that his/her property is at risk of damage, your bankruptcy will not likely halt the eviction.
You will only realize the full benefit of bankruptcy in an eviction dispute by engaging an attorney early.
8. Stopping Lawsuits
Bankruptcy proceedings aim to relieve applicants from financial actions, including lawsuit judgment awards. However, there are exceptions. Whether bankruptcy discharges your debts depends on the type of judgment and whether the judgment creditor has a lien on the property.
Engage a bankruptcy attorney who will advise you if bankruptcy is a solution in a lawsuit against you.
Most judgments will require wage garnishment. The court will mandate your employer to withhold a percentage of your earnings to pay back the creditor or individual who filed the case against you. The wage garnishment will remain effective until you pay the debt in full.
Bankruptcy will stop debt collection efforts, including wage garnishment. However, this will not eliminate your debts in full. You will be tasked to meet the terms of your bankruptcy case to stop your income from being garnished per the pre-bankruptcy filing terms.
9. Halting Harassing Calls From Creditors
Debt collectors go to extreme lengths to recover a debt. Some tactics they employ can be a nightmare and rob you of your peace. A few examples of the harassing behaviors of debt collectors include:
- Using profanities
- Repeated phone calls and letters that aim at abusing, harassing, or aggravating you
- Violent threats
- Threatening legal action
- Calling without identifying themselves
- Threatening to publish your name in a non-payment shameless that does not include credit agencies.
Most people are unaware that FDCPA (Fair Debt Collection Practices Act) prevents debt collectors from using deceptive or misleading practices to collect a debt. They should refrain from making the following misrepresentations:
- The value of the amount owed
- Making false threats of arresting you
- Pretend to be an attorney
- Threatening actions that they cannot enforce legally
As soon as you hire a bankruptcy attorney and secure bankruptcy orders, the calls and letters will stop immediately. Bankruptcy prohibits debt collection agencies from contacting you.
10. Discharging Your Tax Burden
Did you know you can discharge your tax burden through personal bankruptcy?
The rules governing the discharge of a tax burden are airly complex than discharging other forms of debt. However, it is possible. Both Chapters 7 and 13 offer an avenue to accomplice this.
Most tax debts in bankruptcy proceedings are labeled as priority claims. It means you must pay the tax debt in full to use bankruptcy to discharge your tax debt successfully.
Tax debt is either secured or unsecured. Prioritize paying secured tax debt, and the court will discharge your unsecured tax debt at the end of the process.
Note: The IRS will place a lien on your property to secure your tax arrears.
Should you owe tax for a tax year and the debt is secured, you should pay the arrears three years before filing for bankruptcy.
For unsecured tax debt, most of it will be discharged. Whether the debt qualifies for discharge is an issue that will be determined by how soon you honor the payments plus additional factors, including the following.
- Whether you filed your tax returns
- You did not commit fraud while filing your returns.
- Your debt is over three years old.
- Your tax assessment occurred at least 20 days before your filing for bankruptcy.
- You owe federal income tax and not payroll tax — Income taxes are a percentage of an income paid to the state or federal government. Payroll taxes, on the other hand, are a portion of an employee’s pay withheld by the employer and paid to the government on the employee's behalf. Payroll taxes primarily fund social security programs and Medicare. Both are withheld by employers when making payroll.
When dealing with income tax, you must meet the deadlines, including those of your previous tax returns. They will affect your qualification for a tax discharge.
11. You Have Exhausted All Your Options
Bankruptcy, in most cases, is a measure of last resort. You can opt for bankruptcy when you have exhausted all your debt-settlement options unsuccessfully and are unable to find reliable options to catch up on your debt repayment.
Filing for Bankruptcy
It is necessary to determine your circumstances and the appropriate Chapter that addresses your goal. Further, you will also have to consider your income and other additional factors, including whether you want to retain your property, are looking to eliminate your debt, as well as the impact bankruptcy will have on your credit score.
You should consult a bankruptcy attorney. He/she will assess your situation and advise you accordingly.
You can file for either Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 eliminates most debts and allows you to make a fresh start financially. Certain non-exempt properties will be sold, and the proceeds will be used to settle your debts.
Not all individuals who apply qualify. You must meet the terms of the means test to qualify. The test uses data on your monthly income to assess your eligibility. This will help the courts determine whether you have the means to settle your debts.
Chapter 13 Bankruptcy
Chapter 13 is your reorganization bankruptcy option. This Chapter allows you to develop a payment schedule that you will use to pay off your debt. The repayment plan is established by the court and will remain in effect for three to five years. It is expected you will have cleared your arrears through that period.
Chapter 13 bankruptcy is the most preferred. It allows individuals and businesses to retain their properties while paying off their debt in a structured manner, absent the harassment and pressure most experience when debts fall due. Further, individuals filing for Chapter 13 bankruptcy get to choose the asset they wish to retain. The rest can be liquidated to offset the debt.
Bankruptcy Vs. Debt Negotiation
Bankruptcy has proven to be a viable option that helps protect borrowers' rights. However, it should be your last option. You also can negotiate with the creditors on a repayment plan that works for both of you. In these negotiations, you can detail your current situation and use it as a basis for your request to adjust the repayment terms.
Note: It is in your best interest to have a bankruptcy attorney guide you through bankruptcy and debt negotiations. Only then can you achieve the most out of bankruptcy or debt negotiations.
Engage an Experienced Bankruptcy Attorney Near Me
Are you facing any of the above challenges and are considering bankruptcy?
The San Diego Bankruptcy Attorney is ready to help. We fight for our client's interests. We bring on board years of experience and understanding of the laws and practices surrounding debt collection and bankruptcy. We will use our expertise to protect your rights and secure you the best outcome. Call us today at 619-488-6168 for a free case evaluation.
