Advantages and Disadvantages of Bankruptcy
Advantages of Bankruptcy
As part of our work with clients considering bankruptcy, we want to make sure you understand all of your options. When you are faced with stress and overwhelming debt, bankruptcy can be one option that can quickly end creditor harassment. When you file for bankruptcy, your creditors must stop calling or sending letters to try and collect money from you. In this article we want to briefly and in general outline the advantages and disadvantages of filing bankruptcy. Because each person’s case has a different set of circumstances and facts, each of these advantages and disadvantages must be weighed in light of your particular situation.
Protection from Creditors
When you take out a loan that is unsecured, it means that you have not used any property as collateral for the loan. When you fail to repay the loan, the creditor has the right to sue you and possibly get from the court a lien on your property. When you file for bankruptcy, your property is protected from unsecured creditors. Bankruptcy filing will also usually protect your wages from being garnished.
The Automatic Stay
We referred to this earlier in the article when we stating that bankruptcy is often the quickest and easiest way to stop harassment from creditors. When you file bankruptcy, it begins the automatic stay. Most of your creditors are required to stop any actions against you such as repossession, wage garnishment, foreclosures, shut off of utilities, and possibly even eviction.
Eliminating or Modifying Secured Debt
Filing bankruptcy gives you the tools to handle your secured creditors as well. The bankruptcy laws often make it possible for you to keep you home, car or other property that might otherwise be lost outside of bankruptcy.
Dealing with More Serious Issues
If you are facing the possibility of losing your driver’s license because you owe an accident victim money, filing bankruptcy may be one of the few ways to keep your license. If you might be facing jail time because you owe back child or spousal support, bankruptcy may be able to keep you from going to jail. Again, your circumstances will determine how important these factors are in making a decision to file bankruptcy.
Disadvantages of Bankruptcy
Now that we’ve discussed some of the advantages of bankruptcy, here are some of the disadvantages.
Many clients are concerned about filing chapter 7 bankruptcy because they are afraid of having to sell their property. The majority of clients who have consumer debt are allowed to keep much of their property under the bankruptcy laws. This is referred to as “exempt property.” And under chapter 13, even property that isn’t exempt might be kept under the payment plan submitted to the bankruptcy court.
Discrimination Based on Bankruptcy
The Bankruptcy Code prohibits discrimination based on bankruptcy. Government units cannot deny a student loan or housing to clients because they filed for bankruptcy or received a discharge. Utility companies cannot deny service either, though they may ask for a security deposit to ensure you pay for the utility service. A private employer cannot fire or refuse to hire someone because of a bankruptcy. It is important to remember however, that a company or employer can make a decision based on ability to repay a debt or financial responsibility.
Future Health Care
Inability to pay medical bills is one of the primary reasons for filing bankruptcy. When considering bankruptcy you may be concerned about getting future health care, if you receive a discharge from medical bills. There is no simple answer to this issue. If you have a particular doctor you want to continue to see after bankruptcy, you can have a discussion with the doctor about continuing care after bankruptcy. Remember that you can include medical expenses as part of your budget when we discuss your case. It may be that your doctor is willing to take cash or you can make other arrangements with the doctor after you receive the bankruptcy discharge.
Impact on Credit
Under the Fair Credit Reporting Act, a bankruptcy will stay on your credit report for 10 years. It is hard to predict the effect of bankruptcy on a client’s credit rating. It is likely that if you have had challenging financial problems over the last few years, your credit has already been impacted negatively. When you file bankruptcy you do have the option of voluntarily paying a debt when you want to keep a line of credit open. Remember to discuss this with us as your attorneys to make sure that paying off the credit before filing will not impact your case.
Ethical or Moral Issues
Many of us grow up learning lessons about how important it is to keep our word and fulfill the promises we make. Clients will often feel that filing bankruptcy is a moral and ethical dilemma. They feel that if they made the promise to pay the money, they need to honor that promise. We understand this concern about bankruptcy. Each client must weight the pros and cons of bankruptcy to decide what is best for him or her and their family.
The right to file bankruptcy is a legal right, guaranteed by the law. Even though some clients struggle with feeling like they are letting go of their values, it is important to remember there are times when bankruptcy allows you to fulfill other moral or ethical obligations, such as taking care of your family. If you have enough income to qualify, you might also remember when making this decision, that under chapter 13 you will spend several years paying back a portion of your loans. Even after bankruptcy, you can later make the decision to pay back money you owed when your financial situation stabilizes.
Should I File for Bankruptcy?
Ultimately, this is a question you must answer yourself. We are here, as your Arizona bankruptcy attorneys, to discuss with you in person the pros and cons of your decision based on the specific facts of your case. You may feel as though bankruptcy is your only choice. This may be true. However, by looking in depth at your case we will be able to discuss all of the options.
You will have the opportunity to decide if credit counseling is your best option. It may be that you are cashing in some of your retirement accounts to pay for your bills now. Although this may seem like your only option now, we can discuss whether or not bankruptcy will provide you with the financial relief now so that you are able to preserve your retirement income for the future.
It may be that the peace of mind bankruptcy gives you outweighs the possible disadvantages of filing. Our goal is to provide all of our clients with the information and education they need to make the best decision possible. We have decades of experience in handling bankruptcy cases with clients from all walks of life. We are here to ensure you take full advantage of all of your legal rights under the bankruptcy laws.
Call us today in Tucson or Phoenix to schedule your free consultation.