Bankruptcy V.S. Doing Nothing
If you’re struggling with debt, filing for bankruptcy can be a good way to get your finances back on track. But not everyone needs to start a bankruptcy case right away. Whether you should file for bankruptcy or do nothing will depend on whether you’re vulnerable to creditors. In some cases, doing nothing (at least for now) might be the best option. Most creditors need to file and win a money judgment in court before they can take your property. If, however, you don’t have anything that a judgment creditor can collect, you’re “judgment proof.” You won’t need to file for bankruptcy.
Generally, you’re judgment-proof if:
• You don’t have any equity in real estate.
• You don’t own any assets that you can’t protect from creditors. (State exemption statutes prevent you from giving up certain types of property to collection or bankruptcy, such as equity in a home or car, food, or basic living necessities.)
• You aren’t working or have a very low-paying job.
• You receive an income source that’s exempt from creditors, such as Social Security benefits (and, in some states, unemployment other public entitlement benefits).
But, being judgment proof can be a temporary situation. For instance, being out of a job now but employable in the future isn’t the same as being permanently retired. If you are relatively sure your financial situation won’t improve substantially, and if collection pressure doesn’t bother you, there might not be a reason to file for bankruptcy.
Will Bankruptcy Wipe Out Your Debt?
Not all debts get discharged in bankruptcy. If you’ll still have to pay your most worrisome bills after filing for bankruptcy, then filing probably won’t be good idea. On the other hand, if filing for bankruptcy gets rid of enough debt that you’ll have more money to devote to non-dischargeable debt, bankruptcy might still help.
Past Due Child Support
A Chapter 7 bankruptcy filing won’t eliminate or reduce child support debt. So filing for Chapter 7 bankruptcy won’t help unless you can free up future income you can use to pay your child support by discharging other debt.
A Chapter 13 bankruptcy case, however, can be a better option. You can stop collection actions by entering into a three- to five-year repayment plan to pay off your past-due support payments in full. Be aware that if you have a hefty outstanding balance, your monthly payment might be steep because you must pay off all of the arrearages in the plan. You’ll still have to continue making your ongoing child support payment, as well.
If you can catch up in Chapter 13 bankruptcy, here are some of the complications you’ll avoid:
• wage garnishment
• loss of unemployment compensation
• jail time
• offsets of federal or state income tax refunds
• passport denial
• offsets of state lottery winnings
• driver’s license suspension
• reduction of workers compensation benefits, or
• reduction of social security or disability benefits.
Past Due Income Taxes
Taxpayers with outstanding tax debts are subject to a levy on assets or other income sources. A levy is a legal seizure of your property to satisfy a debt. Once a levy is in place, it usually remains until you pay off your tax debt.
If you owe past-due income taxes and you do nothing, you could face the following:
• losing state or federal tax refunds
• a reduction in social security benefits
• a wage garnishment (depending on the state in which you live), or
• a lien against your real estate.
Understand that a bankruptcy filing won’t eliminate recent tax debts. However, through a Chapter 13 case, you might be able to pay off the tax debt over a period of three to five years.
Student Loans
If you’re in default on your student loans, the lender could result in a:
• wage garnishment (depending on the state in which you live)
• offset of federal and state income tax refunds
• loss of eligibility for federal aid, including Pell grants
• loss of deferment or forbearance options, or
• reduction in Social Security income.
It’s not easy to discharge student loan debt in bankruptcy. You must prove that paying your loans will cause an undue hardship, which is a tough standard to meet, although not impossible in every situation.
Are You at Risk of Losing Your Home or Car?
If bankruptcy can help you save your home or car, it might be a good choice for you. If you’re behind in your mortgage or car loan payments, you can catch up on those payments through Chapter 13 bankruptcy. You might also be able to get rid of second mortgages or home equity lines of credit or reduce your car loan to the market value of the car. In Chapter 7 bankruptcy, you can’t bring a loan payment current, but if you can get rid of other debts to free up money to pay your mortgage or car loan, it might be worthwhile to file. Keep in mind that to keep a house or car in this chapter, you’ll want to be current on your payment when you file.
What Happens If I File Bankruptcy?
Bankruptcy is generally used as a last resort if you severely struggling financially. This doesn’t mean simply a lack of money, rather it is for people who are too deep in debt to be ever able to pay back what they owe. Declaring bankruptcy is a last resort but can offer you a path to bring your finances in order and even a complete reset. While that may sound positive, you should be aware that there are a number of serious negative consequences. You should consider all the factors before trying to file for bankruptcy. For example, you may still lose personal possession and have credit issues long into future decades.
So what does bankruptcy actually do? Well, it can help give you the opportunity to reorganize and pay down your debts over time. Sometimes certain debts can be excused completely.
The big benefit of declaring bankruptcy is that it grants you something known as an automatic stay. This is a way of blocking your debt so that creditors can’t keep trying to collect what you owe. People you owe money to can’t take money from your bank by garnishing your wages or send debt collectors after any of your other assents. Simply put, bankruptcy gives you time to agree with the court and creditors on what to do next while protecting your current position.
Bankruptcy does not wipe the slate clean, it helps to stop your downward spiral into deeper debt and work out a plan to move forward. Downsides do exist for declaring bankruptcy too. It is a clear signal that you are no longer paying your debts which will further damage your credit rating. This means you’ll struggle to be approved for loans, credit, mortgages, apartment rental, and phone contracts in the future. With bad credit, many financial products become hard to get including renting an apartment. This is because the world views you as someone who doesn’t pay their bills. That being said, if you do go bankrupt and work correctly to get out of your situation your credit rating can be rebuilt over time.
What Happens If I Don’t File For Bankruptcy?
• You might not know that creditors (people you owe money) can begin taking money directly from your paycheck – it’s called garnish. You’ll be powerless to stop creditors taking a quarter of your pay. It can get worse too as your bank account can even be frozen to stop you accessing your money.
• Your assets might be repossessed meaning debt collectors take your possessions to pay the debt. Unfortunately, this is very common with people losing their cars and homes plus you could still be left to pay your mortgage for a house you don’t even own any more.
• You credit score will get crushed. As soon as you start defaulting on your debts and bills it will kill your credit score. You’ll struggle to get access to financial products, phone contracts or even rent an apartment. People won’t trust your ability to pay bills and probably for good reason. A landlord won’t rent to you if he doesn’t believe you can pay your rent.
• Other consequences of doing nothing instead of bankruptcy include jail time, passport denial, loss of unemployment benefits, driving license suspension and loss of social security.
Deciding whether bankruptcy is right for you is a tough choice and you should get legal advice as soon as possible. It is no magic pill and is not just an easy way to get rid of debt you don’t want, there are serious future implications. That being said, if you have serious debt that you simply can’t pay down quickly enough to reduce the overall amount then it could be a good option. If you get too deep into debt then you could lose your home while still nose diving deeper into debt.
How Can You File For Bankruptcy With No Money?
You’re probably not pleased with the idea of having to pay out money to go bankrupt. I mean how can you afford to pay for bankruptcy when you can’t even pay your electric bill? Filing for bankruptcy doesn’t have to be expensive and in some situations, the court will even waive your filing fee. That’s a big help but you might still need an attorney to file which you might need to budget for. Alternatively, the law allows individuals to file for themselves. You’ll have to fill in the forms yourself though or use helpful tools.
Should I Declare Bankruptcy Or Not?
Bankruptcy is a tool designed for people you can’t hope to repay their debts. For example, if you a falling behind on loan or mortgage repayment, being chased by people you owe money too or debt collectors are knocking at your door then bankruptcy might be for you. Generally speaking, when you file for bankruptcy parts of your debts are wiped off meaning you may only have to pay back 40%-50% of what you owe. Quite often this is between 40 to 50 cents on the dollar. If you can’t pay what you owe then it could be better to skip the debt by filing for chapter 7 bankruptcy. This clears medical bills, personal loans and credit card balances in a matter of months.
What Is The Downside Of Filing For Bankruptcy?
The downside of filing for bankruptcy is the ability to gain approval for financial products such as personal loans and mortgages in the future. Adding to this, other people might deem you as untrustworthy such as landlords or phone companies as they won’t believe you will be able to pay what you owe. Bankruptcy can also lead to the liquidation or ‘sale’ of your belongings and assets to pay your debt.
Does Bankruptcy Clear All Debt?
No bankruptcy does not completely clear your debt. Some types of debt can’t be wiped out and in many circumstances, you will still have to pay back at least a portion of your debt either by selling your assets or using a payment plan created by the court. You might be able to eliminate other common types of debts like credit cards, medical bills and personal loans.
Can I Keep My Car If I Go Bankrupt?
When filing for bankruptcy some local laws enable you to keep your car and essential housing as long as you keep up with your debt repayment plan. If you fall behind on your court-ordered payment plan then creditors may be able to go after your car.
While bankruptcy sounds scary and is often thought of as the last resort, it is also a handy financial tool to get yourself out of an unwinnable situation. If your debts are mountain quicker than you can pay them down and you see no way out of your current situation then it might be wise to consider filing bankruptcy.
It is not a decision you should take lightly and please seek professional legal advice in Ascent Law Firm before making any choices. You’d be surprised at how much a professional can help you even if it seems like you can’t afford it!
