Should I File Bankruptcy?
Should I file Bankruptcy? As a bankruptcy lawyer, I would love to tell you, "Yes, by all means, you should file bankruptcy." But that would be incorrect advice for most people. Bankruptcy really should be a last resort. There are many things a person can do to mitigate financial problems before ending up in bankruptcy. People often avoid bankruptcy by liquidating an asset to pay off debt; or they sell an asset to reduce their monthly expenses. Others will go on payment plans with their creditors until the debt is paid down. Some folks are uniquely positioned in a way that their creditors can't really take any action against them, sometimes referred to as Judgment Proof, so they can just ignore their creditors until they go away. However, sometimes the creditors are unwilling to work with you, or you are facing an imminent foreclosure, garnishment, or repossession and bankruptcy seems like your only option.
Some financial Gurus are hesitant to recommend their audience to consult with a bankruptcy lawyer. Even though bankruptcy is federal law, its application from state to state is extremely different. Not only do you have bankruptcy judges in different states coming to the exact opposite conclusions when reading the same statute, the ever-important exemption laws vary from state to state. So, for example, in one state a person may lose their million-dollar house, while the exact same person in the same circumstances would have kept it in a different state. Because the laws are applied so differently from state to state the national Guru could not possibly speak with authority on the issue of bankruptcy to any given guest caller.
There are a few situations where you really should seriously consider filing bankruptcy. If you are facing a foreclosure on your home, particularly if it has substantial equity, then filing bankruptcy may be the best option. Filing a Chapter 13 bankruptcy may be able to stop the foreclosure sale and give you an opportunity to catch up the mortgage arrears, refinance the debt to more favorable terms, or delay the foreclosure so you can sell at a more opportune time.
If your wages are being garnished causing you to fall behind on important obligations like rent, car payment, or utilities then bankruptcy may be the right choice. In Virginia, a creditor can seize up to 25% of your wages directly from your employer. For a lot of people, losing 25% of their paycheck puts them at risk of being evicted. In most cases, a bankruptcy can stop the garnishment, discharge the debt, and even allow the debtor to retrieve some of the garnished funds that have already been taken.
Let's say you are not behind on your car or mortgage, but you have substantial credit card, judgment, collection, loan, or medical debt. The monthly payments are overwhelming and causing you to not be able to effectively manage your household budget. In this situation, should you file bankruptcy? It depends. If you are just paying the minimum payment on a credit card, then it could take you over a decade to pay off the entire balance. However, if you can pay extra on it each month, then you may be able to eliminate the balance sooner. If you are not about to lose your house or car, and you can construct a payment plan whereby you are able to pay off all your debts in less than four years, then I would typically advise that you do not need a bankruptcy.
Typically, a bankruptcy remains on your credit report for ten years, the negative information stays there for up to seven years, and it takes up to four years to build up a good credit score after filing bankruptcy. So, if you are not facing the immediate loss of an asset and you can pay off all your debt in under four years, from a credit worthiness perspective, you are probably better off just doing that. By the same logic, if it will take you seven years or more to pay off all your debt, then all things being equal, it may be better to just file bankruptcy and get it over with. If it will take you five years to pay off your debt, then whether or not you should file bankruptcy may just come down to your personal preference.
Even if you think filing bankruptcy might be in your best interest, there may be reasons to not file. For example, in Virginia, an unmarried individual can only keep up to $25,000.00 equity in his primary residence. If you have more than $25,000.00 equity, the Trustee may take your house and sell it to raise money for your creditors. Married couples can exempt and keep more equity in a home than single filers. Even if you have too much equity to file in Chapter 7 you may still be able to file a Chapter 13 bankruptcy and keep your property. A house is not the only asset you can lose in a Chapter 7. Depending on their value, a Trustee could take other assets too, including cash, automobiles, investments, tax refunds, inheritances, etc.
Choosing to file a bankruptcy is a tough decision. The attorneys at John W. Lee, PC have decades of experience in helping people living in the Hampton Roads area decide if bankruptcy is the right choice for them. We offer a free consultation to review your financial situation and help you decide which option is best for you. If bankruptcy is not the right option, we can also help you negotiate with your creditors and settle your debts. Even for our non-bankruptcy clients, we can help to substantially reduce consumer debt by negotiating settlements with creditors.