Legally reviewed by Allen A. Kolber, Esq. - The Law Offices of Allen A. Kolber, Esq., P.C.
The concept of declaring bankruptcy may have a negative connotation associated with it. However, under the right circumstances and for the right person, it may come with serious benefits that outweigh any of its possible drawbacks. With that being said, continue reading to learn whether bankruptcy is a good idea for you and how an experienced Rockland County bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq., P.C. can help you make this determination.
Who Actually Files for Bankruptcy?
First and foremost, it’s important to understand that there is a stigma surrounding bankruptcy that only those who are reckless with money need to pursue bankruptcy. This is far from the truth. The typical filer in New York is a working head of household, often a homeowner, frequently better educated than average, and almost always someone who has been impacted by a single catastrophic event like a job loss, serious illness, or a divorce. Unfortunately, very few household budgets can survive any of these events without warning.
If you are reading this blog because your circumstances have changed rather than overspending, you are the ordinary case – not the exception.
Under What Circumstances Is Bankruptcy a Good Idea?
Simply put, you should turn to bankruptcy once you have already exhausted all your other options for debt relief. That is, if you have already failed to negotiate new repayment plans with your outstanding creditors; got rejected from a loan modification for your mortgage payments; got denied borrowing money from your friends and family members; received little to no constructive advice from a credit counseling agency; or ruled out selling your property as a sustainable option; among other alternatives. This is all to say that the option of bankruptcy should only be considered if your debt is otherwise unmanageable and you require external help to relieve yourself of it.
The alternatives are worth understanding:
- Consolidating what you owe into a single loan at a lower rate
- A debt management plan arranged through a nonprofit credit counseling agency
- Negotiating a settlement directly with your creditors for less than the balance
- Building a realistic budget that frees up cash to put against the debt
- Selling non-essential assets and applying the proceeds
What Are the Signs It May Be Time to File?
Most individuals want to know if their particular situation has crossed a line, so it’s important to understand the situations that require action this week, and the signs that a problem is becoming structural.
Signs That Call for Immediate Advice
There are a handful of events that mean the timeline is no longer under your control, and each of them may be impacted by a filing:
- A foreclosure sale has been scheduled on your home
- You have received a warrant of eviction
- Your bank account has been restrained or frozen
- Your wages are being garnished
- A creditor has obtained a judgment against you or your business
Slower Signals Worth Taking Seriously
None of the following constitutes an emergency on its own, but several in conjunction typically mean the arithmetic no longer works:
- You are using credit cards for groceries and other necessities
- You are paying one card with another
- You are drawing on savings or retirement accounts to cover monthly bills
- You are borrowing from family, or asking them to co-sign
- You are hiding statements or purchases from the people you live with
- You are unsure what you actually owe in total
What Does Filing Actually Get You?
When considering the decision, you should look at both sides, as the relief is concrete rather than abstract. Filing will pause most of what your creditors are doing, and it begins immediately through the automatic stay. As such, this will grant protections from:
- Lawsuits and collection actions
- Wage garnishment
- Repossession of your vehicle or other property
- A scheduled foreclosure
- A restrained bank account
Additionally, at the end of your case, any remaining qualifying unsecured debts, including credit cards and medical bills, will be wiped out.
A beneficial way to weigh that against the cost is to consider whether you can realistically clear what you owe within five years, without outside assistance. If the answer is no, your situation is unlikely to improve on its own.
One Thing Filing Does Not Do
It’s important to understand that filing does not release anyone who has co-signed your debt. As such, a discharge does not eliminate the liability of another person who signed the same debt, meaning a spouse, parent, or friend who signed along with you may still be pursued for the full balance.
Chapter 13 may offer additional protection, as the co-debtor stay offers protections for the duration of your case, but that protection will end when your case does, meaning they will remain liable for whatever your plan does not pay. If someone else has cosigned with you, that belongs in the conversation early.
What Should I Do Before Deciding?
Whatever you conclude, a few steps are worth taking first, and they cost nothing.
- Pull your credit report and read it, so you are working from the full picture rather than the letters that happen to arrive
- Open all your mail and keep it, so you know exactly who is collecting and for how much
- Never ignore a lawsuit, foreclosure filing, or collection action; deadlines pass whether or not you respond
- Review your income and liabilities with your accountant alongside your attorney
Why Should I Speak to an Attorney Before Declaring Bankruptcy?
You must understand that while declaring bankruptcy comes with the ultimate benefit of offering you serious debt relief, there are also major, long-term, negative effects you must be made aware of. For one, your credit score may significantly drop in the aftermath of your bankruptcy proceedings. Subsequently, this may make it all the more challenging for you to obtain a loan for a house, car, or other high-value asset in the following years. It may even be difficult to rent a property, as landlords and management companies may not fully trust you after seeing your credit score and history with bankruptcy.
In the end, if you speak with a seasoned attorney, you can receive confirmation that declaring bankruptcy is absolutely necessary given your current financial standing, regardless of its potential cons. What’s more, they can assure you that you have indeed exhausted all other alternatives, as mentioned above, before proceeding any further. Lastly, they may determine whether the debts you have incurred qualify for forgiveness through bankruptcy in the first place. For example, spousal support debt and child support debt do not qualify for a discharge, and student loan debt requires a separate showing to eliminate.
However, that does not make filing pointless. A Chapter 13 plan allows you to catch up on support arrears over three to five years while creditors are held off, and discharging your other debts allows you to put your income towards the remaining debt. Whether filing helps is a question for your whole situation, rather than about any single debt.
Contact an Experienced New York Bankruptcy Attorney
We understand just how delicate this situation may be for you. If you need an emotional support system that doubles as a legal support system, look no further than The Law Offices of Allen A. Kolber, Esq, P.C. Retain the services of a skilled Rockland County bankruptcy attorney today. Contact our firm to learn how we can assist you.
