Many people wait too long to seek protection or legal advice. They wait until they have given up things like their homes or retirement accounts, things that might have been saved.
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 that said “bankruptcy is a last resort”. There are several reasons I disagree with the author’s points and tips, so here are my comments on each of the so called “tips“.
1. Get the stats. This is not a tip. It is a wake up call. Numbers for personal bankruptcy filings rise because people are in trouble or maybe more people are becoming more aware of the help and protection available for consumers in Chapter 7 or Chapter 13.
The author said that laws were changed in 2005 to make it hard to file Chapter 7. That is not quite true. While the laws were changed in 2005 to make it harder for some people to file and there might be more hoops to jump through and more documents to provide, that doesn’t mean that people don’t qualify to file.
2. Know the consequences. The article discusses the harm to your credit rating. Yes, bankruptcy will remain on your credit report for ten years, but month after month after month of hits of slow / late / defaulted payments also hurt credit scores.
- You should consider that having a bad credit score but being debt free may be better than carrying debts that can never be paid off – not to mention dealing with the stress of juggling all those debts.
While important to try to keep your credit rating up, it shouldn’t drive you to carry debts you won’t be able to pay.
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.
The author warns about having your home taken from you, but any good attorney can tell you what is protected from your creditors, and whether or not you would loose your home.
- Many people file bankruptcy and keep everything they have, including their home. 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 to file 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.
Good consumer lawyers will keep up with many different options and discuss those with you if appropriate, explain how they work and how they compare to each other.
I review debt management plans with many of my clients, refinancing, budget counseling, sale of assets , debt settlement, and any other option that appears appropriate. I am not restricted in being able to discuss legal advice. Many non lawyers hide behind the fact that they can’t legal advice, so all they do is talk to you about what they do. Many talk you into their program because it might lower your payments, but if it doesn’t fix your problems in the long run they aren’t doing you a service.
I have no hesitation in steering a client away from bankruptcy if there is a better alternative.
- Seeing a lawyer does not mean that you will file a bankruptcy case, but it does mean that you will be able to explore your options with a legal professional, who is free to cover many different avenues and explain if filing is the best option for you.
4. Know the Rules. The article on CNN Money.com said that you need 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….. but this is NOT TRUE.
- Many people file for Chapter 7 and keep their house, though they do pay the mortgage payments to keep it.
Chapter 13 is most often used to help homeowners who are behind on mortgage payments, equity lines, or Homeowner’s dues and are facing foreclosure, but even if payments are behind, Chapter 7 debtors don’t automatically loose their homes.
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. Experienced lawyers can help guide a client use Chapter 7 as a tool to help keep their home, under the right circumstances.
On November 20, 2007 I wrote an article Seeking The Last Resort Earlier: Why Bankruptcy Should Not Be Your Last Resort. Now I am writing about it again, and expect that it will not be the last time I do. I agree that filing is something that should be sought when other options don’t work. I get frustrated when people confuse this with thinking that speaking to a lawyer should be their final step.
It might not be the right time to file, and 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. A good lawyer knows when to recommend this solution, and also when not to.
- 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. It should be a tool to get back on your feet, get your budget balanced, pay whatever debt you can pay but leave you enough to cover your necessities.
Attorneys are not interested in putting people into bankruptcy if they don’t need it. Get the facts, and don’t wait until it is too late.
The right time to look into filing is while you still have options, not when you have lost everything and there isn’t anywhere else to turn.
- While bankruptcy should not be the first resort, you don’t want consulting a lawyer about it to be the last thing you try – because it might be too late.
by Susanne Robicsek, Charlotte NC Bankruptcy Lawyer
article: Bankruptcy Your Last Resort on CNNMoney.com
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Last modified: May 7, 2014