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There it is again. The phone’s ringing. You look at it and that all-too-familiar knot forms in your stomach. It’s that damned creditor calling for the umpteenth time. You quickly send the call to voicemail only to realize that the box has been full since last Saturday. You’ve thought of filing bankruptcy before. Why not just file bankruptcy and be done with this?
Well, what’s holding you back? Perhaps it’s simply not knowing the pros and cons of filing bankruptcy. Perhaps it’s time you became informed and took your life back!
Let me help by shedding some light on the pros and cons of filing for bankruptcy.
Pros to filing bankruptcy:
Depending on your particular situation, bankruptcy can offer almost immediate relief. The Bankruptcy Code prohibits creditors from taking certain actions against you, like:
- Calling you to collect a debt
- Sending you collection letters
- Freezing your bank accounts
- Garnishing your wages
- Filing a lawsuit against you
If you’ve already been sued, then filing for bankruptcy acts as a pause button. Filing stops the lawsuit in its tracks and forces the creditor to appear in bankruptcy court. The creditor must then either assert its claim or ask the court for permission to pursue its lawsuit.
For those in foreclosure, bankruptcy may provide an opportunity-of-last-resort to save their home. For example, a chapter 13 bankruptcy often allows those with sufficient income to pay back or “cure” the arrears on their mortgage over a three to five year period.
Worried about whether you’ll have to give away your car? Well, chances are, you can keep most of your property and still receive the relief associated with filing. In return for agreeing to repay a portion of your debt over a three-to-five-year period in a chapter 13, you can keep all of your property. Chapter 7 bankruptcy is a little tougher in that Indiana residents are limited to $9,800 in personal property for a single person and $18,600 for couples filing jointly. But, in my experience, most parties filing for chapter 7 don’t come close to exceeding these exemption amounts.
At the end of the day, perhaps the biggest pro to filing for bankruptcy is the ability to enjoy a fresh start on life free of phone calls, collection letters, and financial stress.
Cons to filing bankruptcy:
Perhaps the biggest con is the effect on your credit score. Will it suffer? Likely – but chances are if you’re thinking about filing bankruptcy, then it has already been compromised. Also keep in mind that you can carefully and responsibly rebuild your credit quickly after receiving a discharge in bankruptcy.
If you have credit card debt and are filing, then go ahead and cut those cards up right now. One of the first things credit card issuers will do after receiving notice of your bankruptcy filing is to close the credit card accounts. For those who have become accustomed to relying on credit, this can be an immensely scary prospect. As scary as that sounds, this may be the greatest gift the credit card issuers could give you — the ability to learn to live on a cash-only basis free of debt.
Then there is the paperwork. Your attorney is going to ask you for a ton of information. Your tax returns and W-2’s or 1099’s for the last two years, your bank statements for the last three months, your paystubs or proof of income for the last six months . . . While this may sound intense, these documents provide the basic information your attorney needs in order to prepare the bankruptcy petition. You will also work closely with your attorney to develop a snap-shot of your income and expenses. In the end, you’ll likely learn more than you ever knew, or wanted to know, about your finances. But again – the relief can be well worth the effort.
Bankruptcy can be stressful, but your attorney will help guide you through the entire process. Aside from gathering all of the paperwork, perhaps the most stressful part of the bankruptcy process is meeting with the panel or case trustee. While it sounds intimidating, the good news is that typically this is the only time you’ll be required to appear in court. Even then, the meeting is more informal and is not held in an actual courtroom, as judges are not allowed to attend. Moreover, an experienced bankruptcy attorney should be aware of any issues with your case, the personality of the trustee assigned to your case and their expectations, and should prepare you for what to expect at the meeting.
In short, you shouldn’t expect to go at it alone.
Ultimately, it’s up to you to weigh the pros and cons and determine the course of action to take. But, even with the cons described above, keep in mind that the relief can make it all of the effort worthwhile. One can shed a majority of debt, receive relief from creditor harassment/contact, gain a fresh start moving forward, and, in turn, quickly and responsibly rebuild credit. If you’re ready to take the next step, feel free to contact me at (317) 695-1008 or [email protected] for your free consultation!
About Matthew Cree
Matthew Cree is an attorney and counselor at law focusing on bankruptcy and collection defense in Greenwood, Indiana. His philosophy is to be there with his client every step of the way and to make bankruptcy as stress-free as possible.