Erasing your debts and starting over financially can be very appealing when you’ve been struggling with bills and averting creditors for years. Anyone that is considering bankruptcy should be aware of the pros and cons of filing or not filing before making a decision.
Although you must pay the fees for an attorney out of your own pocket, this is the best money you can spend when you think you’re facing bankruptcy. If you file, an attorney will protect you and help you keep your most valuable assets and possessions; if you don’t file, an attorney will advise you of the best course of action to take to protect yourself while getting back on your feet.
Is Filing Bankruptcy Right for Me?
Bankruptcy is your legal right, and Federal law is structured a way to begin protecting you and your assets from creditors the moment you file. However, filing a Chapter 7 or Chapter 13 case is not without costs and consequences, which should be weighed against the benefits when you’re making this life-changing decision. So you may be asking yourself, "is filing bankruptcy right for me?"
Reasons to File
If your liabilities exceed your assets, bankruptcy is a viable solution for getting you out of debt, and in some cases it may be the only solution. When you owe more money in unpaid debts than you have in liquid cash or assets, you are in danger of losing everything and being left with nothing to help you start over. Liabilities exceeding assets is the foremost reason to file for relief. Other reasons include:
1. When you’re facing bank foreclosure on your home. Once your mortgage lender has decided to foreclose, there are only two surefire ways to keep your home: either immediately pay off your unpaid mortgage debt or file bankruptcy. Even if you file the day before a foreclosure is finalized, you will legally stop the foreclosure.
2. To eliminate debts. Filing Chapter 7 bankruptcy can eliminate many of your outstanding debts. You can eliminate your credit card debt, erase your second mortgage though lienstripping, and revise your car loan to a lower principal balance and monthly payment. Chapter 7 can help you get out of debt and get a fresh start.
3. You want to keep your IRA. The older you are, the more difficult it will be to rebuild your retirement savings, so it’s important that you protect your IRA, which could be liquidated by creditors to pay your debts. IRAs are protected by bankruptcy law from being used to pay off overdue debts.
4. To begin rebuilding your credit. Unpaid debts result in a poor credit score very quickly, affecting your ability to borrow money and obtain lines of credit that could help you get out of debt. While filing for Chapter 7 will certainly affect your credit as well, the sooner you take this step the sooner you’ll begin to rebuild your credit. A low credit score can begin to go back up in as few as two years after filing.
5. When creditors are taking action against you. When creditors are proceeding with liquidating your assets in order to get the money you owe them, rather than just threatening and harassing you, you need to take action to stop them. By the time this happens, bankruptcy may be the only solution, which legally protects creditors from continuing to contact you or from taking your assets.
6. To protect your family. If you lose everything, you may not be able to take care of your dependents or yourself. Married couples can have just one person file—usually the main breadwinner—in order to avoid ruining the credit lines of both, making it possible for the family to still borrow money and obtain lines of credit.
7. To relieve stress. Stress is significantly harmful to both mental and physical health and can make it impossible for you to work or take steps to eliminate your debts. Stress can cause an array of health problems that can result in even more unpaid bills. Filing for bankruptcy is often a big relief and worth the stress reduction.