[COLUMN] When bankruptcy may be the best solution

I AM often asked the following questions: When does filing bankruptcy make sense? How much should I owe in order to justify a bankruptcy filing and have that on my credit record? My answer to these questions is always the same: Whether or not bankruptcy is advisable for your situation will depend on your specific circumstances, the types of debts that you owe and your intended purpose in filing. People come to see me for bankruptcy advice for different reasons. Below are 3 of the most common:

  1. Credit card debts are out of control and bankruptcy is the only way out: Lots of times, for whatever reason, credit card debts have simply gone out of control and the person sitting across my desk is severely distressed and confused, not knowing what to do. Credit cards can come in handy in times of financial emergencies or for convenience. But they can also be terribly abused and misused. For example, some people use their credit cards as if they were spending their own money, not realizing that the money actually belongs to the bank and it is not theirs. This is the Las Vegas mentality that betting casino chips doesn’t feel like betting cash so it’s easier to use credit cards when buying things rather than withdrawing cash from your bank and using cash for your purchases.

On the other hand, I realize that other people simply don’t have a choice but to resort to using credit cards strictly for survival because income is always short and they never have enough money to pay their bills every month. To make ends meet, a lot of people are tempted to use their credit cards to pay for monthly living expenses hoping to be able to pay it back “once they get caught up” on other bills. The problem is that this day never comes and debts continue to pile up.

  1. To stop creditors from taking or attaching assets– Once a creditor resorts to forced collection action and obtains a judgment against you over an unpaid debt, the creditor can levy on your bank accounts, garnish your wages or place a lien on your assets. If you are late in paying your mortgage, you may lose your property in foreclosure. Your car can be repossessed if you are behind in your monthly payments and the car can be sold at an auction, after which time you may be liable for a deficiency. I am often perplexed as to why a lot of people who already know that they may be facing one of the above still wait until the last minute before they do anything about their situation. If appropriate for your situation, bankruptcy can immediately stop collection action against you and/ or your property and you can save yourself the humiliation of being served a wage garnishment order by creditors at your place of employment. Keep your financial affairs private by acting immediately before things get ugly.  If you are facing foreclosure, do not listen to advice from people (friends or relatives) who think they understand the legal aspects of your situation. They may mean well and are willing to help but nothing takes the place of a legal professional who can recommend possible options.
  2. Minimum payments are being made on credit cards but the outrageous interest rates being charged by the credit card companies guarantee that your debts will never be paid off- at least not in this lifetime: It is possible that you owe so much on your credit cards that it will take more than one lifetime to pay off what you owe. Some people seem to think that as long as they are able to make the minimum payments on their credit cards, they must be doing “OK”.  One day they decide to look at their credit card statements more closely and come to the sick realization that they still owe the same amount that they did 3 to 6 years ago. Like clockwork, they’ve paid their bills on time and have worked long hours just to preserve their credit standing. Finally, when reality hits them in the face, they realize that they have become a slave to their creditors for life and they start to feel trapped in their situation.

Filing bankruptcy, of course, is a serious decision that must never be taken lightly. You should weigh the advantages versus the disadvantages. I see a lot of cases where a person is actually better off filing bankruptcy now and then just start rebuilding credit after they get a fresh financial start.  Since a lot of people in debt already have a less-than-perfect credit rating anyway, from a lender’s standpoint, they would rather see a bankruptcy on a credit report and no debts instead of seeing huge amounts of unpaid debts, collection accounts, lawsuits and judgments.  If your bankruptcy is 3 years old, you can still qualify to buy a home with some re-established credit if all other credit characteristics are appropriate. Filing bankruptcy is a beginning, not the end.

If you are considering bankruptcy but are confused about your options, I would be more than glad to evaluate your situation, free of charge. Call our office at Toll-Free 1-866-477-7772 to schedule a free attorney consultation. Due to pandemic safety concerns, I am offering free consultations BY PHONE to anyone who needs help in dealing with their debt problems.

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None of the information herein is intended to give legal advice for any specific situation.  Atty. Ray J. Bulaon has successfully helped over 6,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call RJB Law Offices at TOLL FREE  1-866-477-7772.

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