Is Filing Bankruptcy Bad?
Millions of people file for bankruptcy protection every year and almost all those people have a unique reason that causes them to file. But one thing we see time and time again, is that people who file for bankruptcy are good people who were caught up in situations that were beyond their control.
Even though bankruptcy is a perfectly legal remedy for helping people break the cycle of debt, it still carries a stigma. And it’s far too simplistic to say “bankruptcy is bad.”
If you file for bankruptcy with bad intentions, that would be “bad.” But for most people, filing bankruptcy is a chance to hit the reset button on their finances and get a fresh start.
While no one wants to have to admit they are having problems with their personal finances, the reason most people believe bankruptcy is a bad thing is because they don’t understand the process.
These are the top questions and concerns we hear from clients when they schedule a consultation to discuss whether filing Chapter 7 bankruptcy is right for them.
Will I Qualify for Bankruptcy Protection?
There is a means test in California to determine if you qualify for bankruptcy protection but for most people who are struggling to make ends meet, you will typically qualify for Chapter 7.
You cannot have filed another Chapter 7 petition within the past eight years. For Chapter 13, the window is six years.
You cannot have filed another bankruptcy petition in the previous 180 days that was dismissed because of failure to appear or for failure to comply with the court’s orders or that you voluntarily dismissed because your creditors tried to recover property they had a lien against.
Will My Credit Score Be Ruined?
If you’ve been struggling to pay your bills, especially your credit card bills, car payments, or mortgage, your creditors have already made negative reports to your credit file.
While it doesn’t happen this way for everyone, once your debt to income ratios level out, you may actually see your credit score rebound more quickly than you expect.
Plus, with all the credit counseling and financial education you will receive as a result of your bankruptcy action, you’ll start showing that you are creditworthy.
Is it Worth it to File Bankruptcy If I Can’t Get Rid of My Student Loan Debt?
It’s true that you can’t discharge student loan debt in a bankruptcy proceeding. For many people, getting relief from their other consumer debt frees up the money needed to pay on student loans. This may be the situation for you.
There are other types of debt that can’t be discharged in bankruptcy – like recent tax debt and alimony or child support payments. The non-dischargeable nature of these debts also shouldn’t keep you from discussing your options with a Certified Specialist in Bankruptcy Law if you need a way to get control over your finances.
Will Filing For Bankruptcy Affect My Job?
You can’t be fired for declaring bankruptcy. Your employer must have a valid legal reason for terminating your employment.
You may be wondering how your current employer would even discover your filing status. If your wages have been garnished, your employer will receive a notification of your bankruptcy petition. Because once you file for protection from your creditors, all collection efforts and wage garnishments stop.
When it comes to finding a new job, some employers will run a credit check on you but bankruptcy shouldn’t be a determining factor for most types of employment — even for a role that requires security clearance. You’re most likely to have an issue if you are applying for a position that requires handling money.
Being upfront with a potential employer about what they will discover on your credit report might help mitigate any issues.
What Happens to my Car Loan or Mortgage in Chapter 7 Bankruptcy?
Many debts require monthly payments. This is called an installment loan agreement. You have to keep making payments during your bankruptcy if you want to keep the property once you receive your discharge.
Your car payment and house payment are secured by the property itself. If you don’t make the required payments, the lender can take the property.
Your bankruptcy discharges your liability to pay but it doesn’t eliminate the lien the creditor has against your home or car. This lien allows the creditor the right to reclaim the property if your payments fall behind again after receiving your discharge.
If you want to keep your car or home, you must keep your payments current after your bankruptcy. It should be easier for you to do this with many of your other debts having been forgiven as part of your bankruptcy matter. Because there’s no repayment schedule with Chapter 7 bankruptcy, it’s important to have a conversation with your bankruptcy attorney about how to handle your house and your car in your bankruptcy proceedings.
Does filing for bankruptcy stop lawsuits that have already been filed?
One of the initial benefits of filing for bankruptcy is an injunction known as the automatic stay. Once you file, the court will send notices to all your creditors.
This puts your creditors on notice that you’ve filed for protection and they have to cease collection efforts while your case is active.
This means no more collection calls and no more sleepless nights worrying about:
- Your house being foreclosed
- Your utilities being shut off
- Your wages being garnished
- Your property being repossessed
Can I file for bankruptcy on my own?
There are a lot of websites out there that suggest you can file for bankruptcy without an attorney. But bankruptcy isn’t a one size fits all solution. Your case is probably more complicated than you think and working with a qualified Riverside bankruptcy attorney ensures that your petition is filed properly. California’s exemptions can be tricky to figure out on your own and a mistake can be costly. Or simple mistakes in your filing could lead to the Trustee selling property you should have been able to keep or having your petition dismissed without your debts being discharged.
Plus, there are often issues that need to be addressed with the Trustee and an experienced bankruptcy attorney can help expedite the process without further litigation.
Creditors might try to pressure you by continuing to contact you, they may even oppose your filing or try to get you to voluntarily withdraw your petition. This can create an avoidable situation where you’ll now have to wait six months or more before filing an amended petition.
That could mean 180 more sleepless nights!
When is Filing Bankruptcy a Good Idea? The Answer Depends on Your Situation
If your debts are affecting your quality of life or ruining your relationships, it’s probably time to talk to an attorney and see if filing for bankruptcy might be a good idea.
Bankruptcy itself isn’t “bad” or “good”, but rather it’s an important tool for good people who find themselves struggling with debt to get back on their feet.
If you’re in a tough financial position, you should meet with an experienced bankruptcy attorney to discuss your situation. Don’t let the unfair stigma associated with bankruptcy keep you and your family stuck in the cycle of debt.
Understanding your options and the bankruptcy process can be the first step to getting back your peace of mind and giving you hope for a better financial future.
Bankruptcy isn’t without consequences but very few of them are permanent and most people go on to enjoy improved financial circumstances in as little as six months.
One of the benefits of working with a small, boutique law firm is that you won’t get lost in the shuffle and you’ll be treated with respect. Your attorney will be available to answer your calls and they’ll know what’s happening in your case.
The attorneys in our Riverside office also care about your quality of life once your bankruptcy is completed.
We pride ourselves on giving you the tools to set yourself up for future success by reviewing your entire financial situation and then making suggestions that can keep you from falling back into debt.
If you’re ready to discuss your options, give our Riverside office a call to schedule your free consultation.
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