There are many worse things than filing for bankruptcy, and the notion that bankruptcy is a “last resort” is no longer good advice. I now put this in the category of “Myths About Bankruptcy”.
Many people wait too long seek bankruptcy protection way, and give up things like their homes or retirement accounts that could have been saved by filing earlier. Others risk their health and mental well being dealing with the stress of debts beyond the point of being able to repay the debts.
I read an article on CNN Money.com with the opinion that bankruptcy is a last resort. There are several reasons I disagree with the author’s points and tips.
1. Get the stats. First, this is not a tip. It is a wake up call. Numbers for personal bankruptcy filings are on the rise because people are in trouble and are becoming more aware of the help available in bankruptcy. The author said that laws were changed in 2005 to make it hard to file Chapter 7. That is not quite true. The truth is that the laws were changed in 2005 to make it harder for some people to file for Chapter 7 bankruptcy. Bankruptcy is still available to many people who need it, both Chapter 7 and Chapter 13.
2. Know the consequences. Bankruptcy will remain on your credit report for ten years, but month after month after month of hits of slow/late/defaulted payments also hurts credit scores. One must consider that having a bad credit score and being debt free may be better than carrying debts that can not be paid off, not to mention dealing with the stress of juggling all those debts.
Once debt free, it is important to do every thing possible to stay out of debt and to rebuild your credit scores by faithfully making payments and using credit wisely. As for being warned by the author about having your home taken from you, any good bankruptcy attorney can tell you what is protected from your creditors. Many people file bankruptcy and keep everything they have, and those that have more than the protected amount may be able to file a Chapter 13 and protect the non-exempt property.
3. Gauge your eligibility. To best follow this tip, see a lawyer who can help you gauge whether or not you are eligible for bankruptcy and whether or not it is a good option for you. The article said to ” make sure you’ve gone to a credit counselor and explored every other alternative before settling on bankruptcy.” Here is a true tip: Lawyers can explore alternatives AND give legal advice, which is something that no credit counselor can do. I review debt management plans with many of my clients, refinancing, budget counseling, sale of assets and any other option that appears appropriate. I have no hesitation in steering a client away from bankruptcy if there is a better alternative. Seeing a bankruptcy lawyer does not mean that you will file bankruptcy, but it does mean that you will be able to find out if bankruptcy is the best option for you.
4. Know the Rules. The article on CNN Money.com said to know the rules and then gave as an example of a rule: ” you won’t be able to save your home” if you file for Chapter 7. This is NOT TRUE. Many people file for Chapter 7 bankruptcy and keep their house, but they do have to keep making the mortgage payments to keep it. Chapter 13 is most often used to help homeowners facing foreclosure, but even if payments are behind, Chapter 7 debtors don’t automatically loose their homes. Experienced bankruptcy lawyers can help guide a client use Chapter 7 as a tool to help keep their home, under the right circumstances.
The best way to know the rules is to look into bankruptcy with as much depth as you can. The best way to do that is to rely on the experience of a legal professional. On November 20, 2007 I wrote an article Seeking The Last Resort Earlier: Why Bankruptcy Should Not Be Your Last Resort. In that article I pointed out that filing for bankruptcy is something that should be sought when other options don’t work, people confuse this with thinking that speaking to a bankruptcy lawyer should be their final step.
It might not be the right time to file, or you might be able to avoid it altogether, but do consult an experienced bankruptcy lawyer before you start seeking help from internet advisers and non-legal professionals. Bankruptcy should be filed when you can’t repay your debts but before you give up everything – things that could be protected from your creditors. Attorneys are not interested in putting people into bankruptcy if they don’t need it. Get the facts. Do it when it is the right time, not when you have lost everything and there isn’t anywhere else to turn. Bankruptcy should not be the “last resort”.
by Susanne Robicsek, Charlotte NC Bankruptcy Lawyer
article: Bankruptcy Your Last Resort on CNNMoney.com
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