Wednesday, September 10, 2014, AM | Leave Comment
When financial times get dire, many consumers begin to consider whether or not their best option is to file bankruptcy and seek the “escape hatch” from mounting debts that are becoming nearly impossible to pay.
In some cases, bankruptcy actually isn’t the best option. Sometimes, filing bankruptcy won’t erase the debts that are most severe and causing the most financial harm.
In those cases, bankruptcy would discharge only some debts and leave the consumer with a poor credit rating for a longer period of time.
In many other cases, however, bankruptcy does have the potential to be the light at the end of a very dark tunnel.
There are a few signs that bankruptcy is the right option.
The Debt Primarily Comes from Medical Sources
One of the biggest sources of debt in the American economy is that of medical debt.
Whether it was an accident that required an attorney for personal injury, a terminal medical condition that exceeded the bounds of health insurance and personal finance, or a problem that cropped up without health insurance, these debts represent a significant burden for the average household.
They can also be discharged by following through with Chapter 7 bankruptcy, or at least restructured into a favorably payment plan under Chapter 13.
The Debt Doesn’t Come Primarily From Student Loans
If the majority of a consumer’s debt comes from private sources, like personal loans, car loans, credit cards, and cosigned lines of credit, bankruptcy is a good idea.
The bankruptcy process can discharge or restructure these private debts, giving consumers the breathing room they need to recover, reestablish their credit, and learn a valuable lesson about their maximum debt burden.
If the debt-related problems come from federal student loans, however, bankruptcy is not a good option. These loans are not typically discharged in bankruptcy unless there is an excessive amount of financial hardship. That type of hardship is hard to prove and is almost never granted.
The Debt Isn’t Owed to State Revenue Agencies or the IRS
Bankruptcy can solve lots of problems, but debts owed to the IRS or a state revenue department cannot be solved by either Chapter 7 or Chapter 13.
Indeed, these debts outlast bankruptcy just like the typical student loan does.
Debtors may be able to arrange more favorable payment arrangements with the agency to which the debt is owed, and they may be able to fight wage garnishment in some cases, but discharge simply will not work in this case.
The Debts Risk Turning into Lawsuits, Public Records, and Garnishments
If the debts in question have been excessive for a very long time, and payment has not been made for at least six months, then it’s time to consider filing for bankruptcy.
This will allow a lawyer to become the point of contact for the debtor, and it will essentially stop collection activity while the petition is pending.
That means debts cannot be litigated, public records cannot be lodged against the debtor, and a court cannot be asked to garnish wages to take property to cover the outstanding balance of a given debt.
The Debts Linger After a Divorce, and a Spouse Won’t Assist with Payment
Sometimes, debtors are left in financial ruin after divorce. Cosigned loans, mutually owned properties, and many other things, can turn into unpaid obligations and harassing collection calls in no time.
If one spouse is uncooperative, then bankruptcy might help to discharge or restructure the debt so it can be more easily handled and the recovery process can begin.
Bankruptcy is a decision that shouldn’t be taken lightly. It’s also a decision that shouldn’t be made automatically when a consumer finds himself or herself in excessive debt.
By carefully considering the circumstances, the type of debt owed, and the potential consequences that could result due to unpaid obligations, consumers will have a better idea about the pros and cons, and suitability, of declaring bankruptcy and moving past their current credit obligations.Facebook.com/doable.finance