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Filing for bankruptcy is never anyone’s first choice. Though, the process helps many individuals overcome seemingly hopeless financial obstacles, the need to file stems from having an exorbitant level of debt.
Mounting debt can be the result of any number or combination of factors: a serious injury, the loss of a job, a confluence of unexpected expenses. Too much debt, no matter how it accumulates, can quickly derail a person’s life and create escalating problems, including creditor harassment, lawsuits, and wage garnishments.
Bankruptcy has become unfairly stigmatized, and many myths persist about the institution. You might have heard that bankruptcy will result in your losing all of your property or that filing makes you a bad person. In fact, bankruptcy confers many immediate and long-term benefits.
It can be easy to believe that your debt is only a temporary problem that you can handle on your own. Unfortunately, many loan agreements are designed to work against you, making catching up difficult to impossible without some form of outside assistance. The longer you wait to address a building problem, the worse it can get, so it is important to recognize when bankruptcy or some other means of financial relief may be necessary. Below, we review 5 signs it may be time to consider bankruptcy.
When you start to miss payments on your obligations, you will begin to accrue interest, late fees, and other penalties. However, in the short-term, you are unlikely to face more severe consequences. This can have the effect of debt building semi-invisibly for some time.
When debt becomes delinquent enough, creditors may begin contacting you directly about why you have not yet paid. These communications might start innocuously enough: You might receive a letter or call from a representative of your bank, for example. Should you still be unable to pay, however, you may begin to get more frequent and aggressive inquiries.
Calls, letters, and visits from collection agents can quickly cross the line into creditor harassment. The Fair Debt Collection Practices Act regulates how debt collectors can interact with you, but many will assume you are not familiar with your rights. A creditor cannot harass you, call you repeatedly, use abusive language, or attempt to intimidate you, among other things.
You are able to put a stop to the worst of creditor harassment by simply asking a creditor to stop calling or visiting and make all further communications in writing. Collection agents are legally required to oblige this request, but they will likely not give up on pursuing your debt.
To truly stop creditors from hounding you, you will need to address the debt that is prompting them in the first place. This may require filing for bankruptcy, which entitles you to the automatic stay. This court order prevents creditors from contacting you directly for the duration of your filing.
Creditors will often go to great lengths to convince you to pay at least some of a delinquent debt. Depending on the scope of what is owed, they may resort to even greater measures to secure repayment. Some creditors will sell debts at a loss to collection agents that specifically and exclusively work to pursue debtors and profit.
When a debtor feels they have exhausted all options in communicating with you directly about settling a debt, they may explore filing a lawsuit against you challenging your failure to repay. If the debt is indeed yours, you will likely have little defense in court, even if you have no disposable income with which to partially or fully repay the obligation.
Should a court rule against you in a debt-related lawsuit, the creditor that brought it will likely be granted the ability to garnish your wages. This means that your employer will be forced to extricate a portion of your pay that is instead sent directly to the debt collector. Not only is this embarrassing, as your employer will have to facilitate the payroll adjustment following a court order, it will also make your financial situation even more untenable.
You will have some notice when a debt-related lawsuit is being filed. Generally, collection agents will warn you that they will resort to one, if necessary – and it is unlawful for them to threaten to sue if they do not actually intend to. If you learn of one or more forthcoming lawsuits, you should take immediate action by consulting with a legal professional and potentially filing for bankruptcy before judgment can be rendered.
The bankruptcy’s automatic stay freezes all collection actions, meaning any pending lawsuits filed against you cannot continue until your filing has concluded. By then, the debt involved in the lawsuit could be rendered moot if it is discharged or the bankruptcy’s financial reorganization enables you to pay it off.
Receiving a foreclosure notice can be terrifying. The thought of losing your home is unthinkable, even if you have struggled to keep up with your mortgage payments.
Luckily, you will have ample warning that foreclosure is being considered by your lending institution, and the process cannot be initiated until at least 120 days have passed from the date of your first missed payment. Foreclosure is also a pricey and protracted process for banks, who may be willing to renegotiate your mortgage if it avoids the process.
In some cases, though, lending institutions will still pursue a foreclosure. Filing for bankruptcy can help stop the process in its tracks, as foreclosure is considered a “creditor action” that must freeze under the automatic stay. The foreclosure will be unable to continue – meaning you will be able to stay in your home – for the duration of the bankruptcy. In the case of Chapter 13 bankruptcy, this means your home could be protected for as many as 5 years.
It should be understood that missed mortgage payments are not dischargeable under a bankruptcy, so you will still need to catch up to avoid a foreclosure from being reinitiated. Again, though, you will likely have a significant amount of time to prepare for this eventuality. You may be able to discharge other unsecured debts, for example, freeing up finances to catch up on your mortgage.
If you are presented with a foreclosure notice, it is important to take swift action. Promptly consult with a bankruptcy lawyers and consider filing before an auction for the property can occur.
Contrary to inaccurate characterizations that present bankruptcy filers as irresponsible, many turn to the practice when they face a financial obstacle that they could not have possibly anticipated and was entirely out of their control. A common culprit is an injury or severe illness requiring ongoing treatment or an extended hospital stay. The cost of medical care in the United States can be wildly high, leaving you with astronomical bills you cannot possibly hope to pay, even if you are otherwise reasonably well off.
If you are living paycheck to paycheck or are already fighting growing debt, an unexpected expense can quickly send you into a seemingly irreversible spiral of missed payments. Consider an example where you are barely making enough to meet ends meet. For the most part, though, you are keeping up with your mortgage, credit card payments, and vehicle payments. However, you get into a hit-and-run car accident that leaves you seriously injured. Your insurance will only pay for a portion of the vehicle repairs, and you require medical treatment for your injuries. You now face two additional significant expenses when you were only barely keeping you head above water.
In these situations, bankruptcy may be the solution to help you from collapsing into deeper debt. Filing should be considered once it becomes clear that you will not be able to feasibly repay what you owe. If you were already struggling before a new, unavoidable expense appears, it may be time to consult with an experienced bankruptcy attorney.
There are two categories of debt. Secured debt refers to those that have some form of collateral, like a vehicle, home, or some other material asset. Examples of secured debt include mortgages and vehicle loans. Student loans and money owed to the government, or tax debt, are also considered secured debt.
Unsecured debt stems from loans not anchored by any collateral and are instead only granted on a trust that the recipient will repay, which is often measured by an individual’s credit rating. Examples of unsecured debt include personal loans, unpaid utility bills, medical debt, and credit card debt. After meeting the court-ordered conditions of your bankruptcy, you will typically be authorized to discharge – or dismiss – unsecured debts.
The ability to discharge unsecured debts is one of the greatest benefits of bankruptcy. If a majority of your debt load is rooted in the unsecured category, bankruptcy can become an even more tantalizing and beneficial option. For example, if are weighed down by insurmountable credit card debt and lingering medical bills from a previous injury, successfully completing a bankruptcy filing could potentially allow you to eliminate both.
If you have a great deal of secured debt, you might wonder if bankruptcy is still worth it. After all, you will still be on the hook for your secured debt. Bankruptcy is not necessarily right for everyone, but filing can in many cases give you the time and tools to reposition your finances: By discharging any unsecured debts, available funds can be reallocated to settle remaining secured debts.
If you are struggling to keep up with payments or are starting to receive lawsuit or foreclosure notices, it is likely time to explore filing for bankruptcy. Our lawyers at Bach Law Offices, Inc. can guide you through every step of the process. We can assess the specifics of your financial situation and walk you through how filing will work and what the expected results will be. Our team can also determine if you qualify for Chapter 7 bankruptcy or Chapter 13 bankruptcy and help you understand the practical implications of each type. No matter the scenario you find yourself in, our goal is to always help you retake control of your finances and achieve the best result possible.