Could bankruptcy be right for me?

For many people, filing for personal or business bankruptcy is the right course of action. The emotional and physical stress that results from constant worry and from constant harassing calls from creditors can be overwhelming. Having to use one credit card to make payments on another and never having savings in the bank can wreck your well-being and undermine your marriage and family. For some, quite literally, obtaining debt relief through a bankruptcy can be life-saving.

In addition to stress-relief, there are many other advantages of filing for bankruptcy, including:

• Obtaining immediate relief from harassing creditors through the automatic stay
• Preventing foreclosure and other property seizures through the automatic stay
• Stopping most creditor wage garnishments
• Obtaining permanent debt discharge or an affordable payment plan through a reorganization of debt
• Preserving certain assets, like the family home, from seizure by creditors through use of bankruptcy personal exemptions
• Beginning the process of rebuilding financially post-bankruptcy
• And more

That being said, filing for bankruptcy is not always the best option for debt relief. Determining whether a bankruptcy is right for you involves an exacting examination of your debt, income and assets and your short- and long-term financial goals. Here are some examples of when a bankruptcy filing is NOT the right choice:

• When a substantial majority of the debt cannot be discharged (like student loans, unpaid taxes, alimony and child support obligations)
• When essential assets, like an ongoing family business or large property holdings, will be lost during the bankruptcy
• When the needed debt relief cannot be obtained from a bankruptcy
• When near-term financial goals, like buying a home, cannot be achieved if bankruptcy is filed
• When foreseeable non-avoidable debts are on the horizon for the next several years; a bankruptcy can be filed only every eight years
• And more

There are also important negative consequences for those that obtain debt relief through a bankruptcy filing, including:

• Inability to obtain uncollateralized credit like personal loans and credit cards; this can persist for several years
• Higher interest rates for collateralized loans, like for auto loans; this can persist for several years
• Difficulty in obtaining some types of loans even where collateralized, such as a home loan
• Immediate drop in credit scores, which can persist for up to 10 years
• Potential loss of tax refunds
• Difficulty obtaining leases, as rental companies and landlords often inquire about bankruptcies; can be the basis for denial
• Employment impact; some employers use bankruptcy filings as a hiring criteria
• And more

For those considering a bankruptcy filing, you will need to retain experienced and dedicated attorneys with extensive knowledge of the Bankruptcy Code and other debt relief mechanisms to provide advice and counsel. There are other methods of obtaining debt relief. Good debt relief attorneys can help weigh the advantages and disadvantages of each and help determine the right strategy based on your unique circumstances.

The Bankruptcy Process

To explain whether filing for bankruptcy is right for you, a brief overview of the process can be helpful. Bankruptcy is a legal process that begins with the filing of a bankruptcy petition. The petition is a long document that details the debtor’s income, assets, debts and other matters.

When a petition is filed, by law, ALL efforts by creditors to collect debt payments must stop including phone calls, letters, foreclosures, lawsuits, garnishments and seizures. This is called the "automatic stay" and this is why filing for bankruptcy provides such immediate relief to those suffering from debt collection harassment. For those needing relief from creditor harassment, a bankruptcy filing is often a good option.

Each bankruptcy petition is assigned to a federal bankruptcy judge who has the ultimate authority with respect to how the case is handled. Each petition is also assigned to a Bankruptcy Trustee who acts on behalf of the judge and handles the routine processing of the case.

The Trustee also acts as an "agent" or "trustee" for the creditors. When the petition is filed, all of the assets and debts of the debtor become part of what is called the bankruptcy estate. For example, if the debtor is a small business that is unable to continue operating, assets might include inventory, physical equipment and real estate. If the debtor is an individual, assets might include the debtor's home, financial accounts, cash on hand and automobiles. While the bankruptcy is pending, all of these assets are "owned" by the bankruptcy estate and are under the control of the Trustee. These assets are available to the Trustee to be liquidated in order to pay as much of the sales proceeds as possible over to the creditors. This is the mechanism by which personal and family assets can be lost. For some, this is a reason for NOT filing for bankruptcy.

However, a bankruptcy can also be a mechanism that can preserve personal and family assets. In a personal bankruptcy, assets are not generally sold if there are substantial personal exemptions that can be applied. The Bankruptcy Code and state statutes provide various exemptions for use when a person files bankruptcy. For example, every state provides an exemption in some amount for the debtor's personal residence. In Texas, the exemption amount is unlimited as long as the land is less than 10 acres in a city or town and less than 100 acres elsewhere. See Tex. Prop. Code 41.001 - 41.002. By contrast, in Indiana, only $19,300 of the value of the debtor's residence/real estate is exempt. See Ind. Code § 34-55-10-2(c)(1). There are also exemptions that cover various dollar amounts for vehicle and personal property.

From this brief overview, one can see how filing for bankruptcy can protect a debtor's personal residence and other personal assets. Without a bankruptcy filing, creditors could seize the house or other assets in the manner of a foreclosure. For those needing to protect personal and family assets, a bankruptcy filing is often a good option.

Making the Decision

As can be seen, making the decision to file for bankruptcy is complex and depends on a large number of variables. Filing for bankruptcy is often the best choice, but not always. More importantly, the timing can be of crucial importance. Debts incurred post-filing cannot generally be included as part of the bankruptcy relief.

Contact Our Skilled Bankruptcy Attorneys Today

For more information and for help weighing the pros and cons of filing for bankruptcy, contact our skilled bankruptcy attorneys today. We can help navigate the options and can offer guidance on how a bankruptcy filing might impact your life. Contact us for a free consultation.