Bankruptcy is often talked about as a “simple” solution to issues with money or debt. While bankruptcy can be an option, it shouldn’t be your first choice in every financial situation. Bankruptcy isn’t a one-size-fits-all solution, especially if you want to avoid foreclosure.
There are many negative consequences or side effects of filing for bankruptcy. Before filing, you should consider all of your other options and the potential outcomes. There may be other ways to save your home than bankruptcy that you don’t know about yet.
An experienced attorney can help you explore your other debt management options. If you decide that bankruptcy is your only option, your attorney can guide you through the filing process and bankruptcy procedures.
Joshua Denbeaux is a New Jersey attorney dedicated to protecting homeowners. Contact us today to learn more about how we may be able to help you.
What Bankruptcy Can Do
Bankruptcy can offer some benefits to people struggling with specific types of debt. Although filing for bankruptcy is not recommended in most cases, there are specific circumstances where it could be useful.
Stop Collection Activities and Creditor Harassment
When you file for bankruptcy, there is an automatic stay on any belongings or possessions in your bankruptcy estate. An automatic stay prevents your creditors from pursuing collection activities while you work out your bankruptcy repayment plan with creditors.
If you’re being harassed by creditors seeking payment or repossession, filing for bankruptcy should also stop those actions.
However, creditors can’t harass you when you tell them to stop contacting you. Any time they contact you when you’ve told them not to is a violation of the FDCPA. Being informed of your rights can help you stop harassment rather than filing for bankruptcy just to stop them from calling you.
Eliminate Unsecured Debts
Filing for bankruptcy can discharge unsecured debts. Credit card balances and unsecured debts can be eliminated through bankruptcy filing, and you won’t have to repay those debts. There are specific rules for discharging debt, including how you spend before filing for bankruptcy.
This doesn’t include secure debts like your home, so bankruptcy may not be the best solution if you own real estate. If you’re facing foreclosure, other options may be a better solution, depending on your financial situation.
What Bankruptcy Can’t Do
Bankruptcy can’t erase all debt issues, which is why we don’t recommend filing for bankruptcy to save your home. It could make your debt a larger issue and take longer to pay off. Bankruptcy is not the best option for dealing with debts, especially for homeowners.
Protect Secured Debt
There is no way for bankruptcy to protect your secured debt. Debt secured with collateral can be discharged in bankruptcy, but the property will be repossessed. For example, if you have a mortgage and can’t pay it, your mortgage debt could be erased in bankruptcy, but your lender will repossess your home.
When dealing with secured debt, bankruptcy is not usually the best option, especially when it involves your home. Exploring loan modifications or other options to avoid foreclosure could help you keep your home.
Eliminate Child Support or Alimony Obligations
Filing for bankruptcy and discharging debt will not get rid of any child support or alimony obligations. Even child support or alimony that you owe will still be owed after filing for bankruptcy.
The only way to change what you owe in child support and alimony payments is to go through family court to change your payment amounts.
Eliminate Non-Dischargeable Debts
Some debts are not dischargeable. Any non-dischargeable debts will have to be involved in a repayment plan to pay off your debts.
Debts not listed in your bankruptcy filing are not eligible to be discharged. Filing for bankruptcy can be a difficult and detailed process. It may be easy to forget certain areas of debt when you file.
Debts related to personal injury due to intoxicated driving and debts from fines or penalties imposed as punishment are also not eligible to be discharged. Most student loans are also non-dischargeable debts. If these make up the debts that are causing your financial strain, filing for bankruptcy is not a good idea because it won’t help you with those debts.
Things To Keep In Mind
Filing for bankruptcy should not be done without carefully considering all your other debt management options. There are things you should consider about bankruptcy before ruling out your other options.
Bankruptcy takes time. Filing for bankruptcy will not solve any of your problems immediately. Depending on what type of bankruptcy you’re filing for, the filing process could take months or years.
Filing for bankruptcy will stay on your credit report and hurt your credit score for years. This can make it difficult to get approved for any type of lending and require you to rebuild your credit.
There is a lot of paperwork involved in filing for bankruptcy, and it can be difficult to make sure that your paperwork is filed correctly. Anything incorrect in your paperwork could make a major difference in your bankruptcy.
Bankruptcy can be expensive. Usually, someone files for bankruptcy because they’re having financial problems, but there are a lot of costs associated with bankruptcy. You’ll have to pay bankruptcy fees as well as attorney fees, which can be a costly expense.
How you spend before filing for bankruptcy can be important. You shouldn’t spend a lot in the months leading up to filing for bankruptcy. Adding any new debt in the 70-90 days before filing can be bad. Creditors can object to a request for a discharge on the grounds of bankruptcy fraud if there is questionable spending.
Know how to protect your retirement accounts. In most cases, retirement accounts are protected from bankruptcy. Some people will drain retirement accounts early to try to pay off debts, but this is usually not in their best interest because of the fees from using retirement accounts.
Contact an Attorney Today
Filing for bankruptcy is a major decision that can greatly impact your life. It’s important that you consider all of the potential outcomes and consequences before filing for bankruptcy. There are other options that can help you manage debt.
An attorney can help you work through all of your other options for dealing with debt. If you determine that filing for bankruptcy is your only option, your attorney can help you make sure that your paperwork is filed correctly.
Contact Denbeaux Law today to learn more about your debt management options and how we may be able to help you avoid filing for bankruptcy.
