Many who qualify for bankruptcy never avail themselves of its potential benefits. While it is true that a bankruptcy filing can affect a person's finances for years to come, for many people, filing is the best option. However, every person's financial circumstances are unique to his or her situation. Deciding if, when and how to file for bankruptcy is a very complicated process and the consequences of filing when you shouldn't can be considerable. It is important to consult with a skilled bankruptcy attorney to determine whether bankruptcy is your best option. We invite you to contact us to discuss your particular situation and how a bankruptcy could impact your financial situation.
Advantages of filing for bankruptcy include:
- An automatic stay against creditors. Once you file, the court automatically issues this stay against any and all debt collection activity. It does not actually cancel your debt, but it suspends any debt collection proceedings until your bankruptcy case is complete or the stay is lifted. This means no more:
- Calls or letters from debt collectors
- Lawsuits on the debts
- Wage garnishments
- Home mortgage foreclosures
If a creditor tries to collect a debt from you after the court grants your automatic stay, your attorney can bring a contempt of court action against them. This means the court can make them stop their collection attempts, fine them and/or make them pay you damages.
- NOTE: An automatic stay does NOT have the power to stop the following:
- Criminal proceedings
- Government tax audits
- The establishing, modifying or collecting of child support or alimony
- Establishment of paternity
- Co-debtors or co-signers
- If you have already filed for bankruptcy once within the past year, you can petition the court for an extension of the first automatic stay.
- However, if you have filed two or more times during the past year, your automatic stay won't go into effect without an explicit order from the court.
- Dischargeable debts. You may be able to discharge, or cancel, your responsibility to repay these debts. A dischargeable debt is one that can be eliminated by bankruptcy. These typically include credit card debt, medical and utility bills, and personal loans.
- Bankruptcy exemptions might allow you to maintain ownership of your property after bankruptcy. If you can “exempt” an asset, this means you don't have to worry about it being seized in the bankruptcy. These exemptions play an important role in both Chapter 7 and 13 bankruptcies. Some exemptions protect up to a certain dollar amount of an asset; sometimes the exemption covers the entire value of an asset. Some exemptions apply to certain types of assets, like a motor vehicle or wedding ring, while others can be applied towards any property you own.
- Credit Score. Although worries about a tanked credit ranking delay many in filing for bankruptcy, and a bankruptcy filing remains on your record for 7-10 years, many debtors actually start improving their credit scores after they file for bankruptcy. Once a person's dischargeable debts are cancelled, this allows them to move forward with a clean slate and begin rebuilding their credit.
However, filing for bankruptcy at the wrong time or filing when you shouldn't can make a bad financial situation worse. Filing too early can sometimes mean that a person loses property he or she would otherwise have been able to keep, or that they have to file a different type of bankruptcy that is not in their best interests (i.e., having to file a Chapter 13 instead of Chapter 7). Regardless, even when bankruptcy is a person's best option, filing also has real, lasting effects on a person's finances that should be considered before filing.
The potential disadvantages of bankruptcy include:
- Loss of credit cards. Many credit card companies automatically cancel any cards you hold when you file. You will probably receive numerous offers to apply for “unsecured” credit cards after filing. These can help you rebuild your credit, but usually require annual fees and high interest rates.
- Immediate impact on your credit score. Chapter 7 bankruptcy stays on a person's credit report of 10 years in North Carolina, while a Chapter 13 remains for seven (7) years.
- Difficultly obtaining a mortgage or loan. A bankruptcy filing can make it difficult to get another loan or mortgage for many years.
- Loss of property and real estate. Sometimes not all personal property and real estate will fit under an exemption. This means the bankruptcy court could seize some of your property and sell it to pay your creditors.
- Denial of tax refunds. State, local and federal tax refunds can be denied because of bankruptcy.
- Job and housing stigma. Some potential employers and landlords ask questions about any recently-filed bankruptcies and this can negatively affect your chances for both.
- Non-Dischargeable debts. There are certain kinds of debt that cannot be discharged by bankruptcy. Non-dischargeable debts typically include alimony and child support, student loans, criminal restitution and fines, and any debts acquired through fraud.
There is overlap between the advantages and disadvantages of filing for bankruptcy because so much of it depends on a person's unique financial circumstances, and there are so many different factors that can affect these circumstances. Please contact the Law Offices of James F. Aspell, P.C. for a free consultation. We are dedicated to taking a case by case approach to help each client take control of his or her finances and future.