DECIDING to file bankruptcy is a difficult decision for most. On one hand, people recognize the immediate relief filing bankruptcy could bring. Once filed, all collection efforts from creditors stops – no more constant barrage of phone calls from collection agencies or flood of letters threatening legal action and statements of delinquent accounts. On the other end, people feel the need to pay their debts and to save their credit. However, if you are already contemplating filing bankruptcy, your credit had probably taken a beating – you are delayed in your credit cards, your house is about to be foreclosed or you are earning less than your monthly expenses probably raiding your savings just to stay afloat monthly. Bankruptcy will give you a breather from all of these and allow you a fresh financial start.
When should you seriously consider bankruptcy? What are the important factors you should consider? Some of these instances are below.
Firstly, an obvious answer – when you are overwhelmed by debt. A lot of individuals are better off filing bankruptcy – those who can barely pay the minimum on their credit card debts, only to see their interest rates rise dramatically when a payment is late, while at the same time, they can not afford health insurance, have little or no emergency savings fund, much less retirement savings.
Second, when your house is under threat of foreclosure and you want to keep these properties. Debtors usually avail of this option if they do not want to lose their house or other properties and they have mortgages or other loans they would like to bring current. As earlier state, an “automatic stay” is issued once your petition is filed, i.e., most creditors (with a few exemptions) cannot take any action against your property to collect the outstanding debt.
Thirdly, if you have a second or more liens on your house and the value of your residence is equal or less than your first mortgage. Under Chapter 13, you can convert your second mortgage into an unsecured debt if the value of your residence is equal or less than your first mortgage and that second mortgage is secured solely on your residence (“lien stripping”). By converting it into unsecured debt, you may not have to pay all or part of your second mortgage and thus lower your monthly mortgage payments.
Fourthly, if crawdown is applicable to you. Crawndown allows debtors a chance to reduce their car debt to the current replacement value of the vehicle plus interest if the card was bought at least 2 ½ years ago. For instance, if you still owe $20,000.00 for your car but the present replacement value is $15,000.00, you pay only $15,000 under a Chapter 13 plan.
Also, debtors with debts that can’t be discharged under Chapter 7 like taxes, child support or student loans can avail instead of Chapter 13. These debts can be paid over time under the Chapter 13 plan.
If you are contemplating of filing bankruptcy or other alternatives, it is advisable to seek the counsel of a bankruptcy lawyer to guide you on the intricacies of filing for such a petition.
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Atty. Gwendolyn Malaya-Santos is a member of the State Bar of California and the Integrated Bar of the Philippines. To schedule for a free initial in-person consultation, please call Tel. Nos. (213) 284-5984 or (626) 329-8215. Atty. Santos’ office is located at 3450 Wilshire Blvd., Suite 1200-105, Los Angeles, CA 90010.
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Information contained in this article does not, nor is it intended to, constitutes legal advice for any specific situation and does not create a lawyer-client relationship. It likewise does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
