What are your options when your debt grows relative to your income and you feel like you will never be able to repay it or need a new plan to catch up? Filing a Chapter 7 or Chapter 13 bankruptcy petition may be your best choice. But it couldn’t be. In fact, there are a number of situations where bankruptcy is not a good idea. We’ll outline those in this article so that you can better understand what to do about your debt.
Get advice from a qualified bankruptcy attorney
The first thing we always want to be clear is that while we understand a lot about bankruptcy because we help clients get bankruptcy auto loans, we are not bankruptcy attorneys. The first place to start when wondering whether to file for bankruptcy is to seek advice from a qualified, reputable bankruptcy attorney. In the San Diego area, we are happy to recommend several on our attorney page. If you need additional guidance, see our previous article, “Choosing a Bankruptcy Lawyer”. A qualified bankruptcy attorney can help you understand whether filing a Chapter 7 bankruptcy or a Chapter 13 bankruptcy is the best choice for your specific situation.
Situations where bankruptcy is not a good idea
There are a number of situations where bankruptcy may not necessarily be the best option. In a moment of panic or despair, you can assume that bankruptcy is your only option. However, if bankruptcy is not a good idea, take a break first, take a deep breath, and consider the following examples:
Your income significantly exceeds your expenses
The tipping point for filing for bankruptcy is when your necessary monthly expenses (including minimum debt payments) are more than your monthly net income. This may seem obvious, but it isn’t always clear to some people with mountains of debt, but it could pay off if just stick to a plan. If it looks like a long road to paying off these debts, some prefer to just walk away from the debt. But if you have significant income left over after paying all the necessary expenses, then all you need to do is file for bankruptcy, just fasten your seat belts and cash it out over time. Remember, it’s not about the amount of your debt, but your debt in relation to your income. $ 10,000 debt seems like very little, but it is a lot when you have no income and no prospects of getting a job or increasing your income. Another option is to seek the help of a credit counseling or debt management program. Just make sure you do your homework and make sure it is legit and has good reviews from independent sources.
You have assets that you want to protect
In most cases, you can protect certain essential assets from bankruptcy, including the car you need to drive, the house you need to live in, retirement accounts, household items, etc. (each state has very specific laws that govern which assets are protected and which are not). Note, however, that Chapter 7 bankruptcy is also referred to as “liquidation bankruptcy”. The reason for this is that the liquidator will check if you have any assets that could be sold to pay off at least part of your debts to creditors. For example, you can own land that has been in your family for generations, but if you do not live on that land, it is likely not protected and could be sold by your bankruptcy administrator to pay creditors. If you don’t have material assets, a Chapter 7 filing might be the way to go, especially if the bulk of your debt is unsecured, such as B. Credit Card Debt. Again, we strongly encourage you to speak to a qualified, reputable bankruptcy attorney about your questions about assets that you could potentially lose in a bankruptcy case.
You recently became eligible for inheritance
This one involves really tricky timing, so be careful. Let’s say you are under financial stress from excessive debt and are considering or preparing to file for bankruptcy. Then suppose someone dies leaving you money or other assets in their will or trust. It will take some time to process everything. This is definitely a situation where bankruptcy is not a good idea! If you file for bankruptcy and then receive the inheritance, the liquidator can take it away from you. Even if you file for bankruptcy, that money or assets may be confiscated to pay your creditors if you are eligible for an inheritance within 180 days of bankruptcy.
Your debts are business related, not personal
Note that when your business is a sole proprietorship, there is no difference between business and personal debt – they are considered one and the same. However, if your business has been properly incorporated as a company or limited liability company and none of the business debts have been personally guaranteed by you, then the creditors must be satisfied with the company’s assets and cannot pursue you personally. This opens up the possibility that bankruptcy is not a good idea in this particular situation. Make sure you discuss the details of your business and its debts with your bankruptcy attorney before deciding which course to take!
The types of debts you have are of no quality for bankruptcy
This comes as a surprise to many people who don’t know much about bankruptcy, but not all of their debts qualify for inclusion in their bankruptcy case. Read the following list carefully as there are exceptions to some. Here are a number of types of debt that typically cannot be included on a bankruptcy filing:
Child benefit: If you are in default on child support payments ordered or approved by the court, you must pay those debts. Child support debts cannot be included in a bankruptcy petition.
Alimony: Similar to child alimony, this debt also cannot be included in your bankruptcy case if you have defaulted on judicial or court-approved alimony payments to an ex-spouse.
Taxes: Most taxes cannot be included in your bankruptcy, especially state and federal income taxes. There are exceptions, though rare, so go over the details of any tax debt you owe your bankruptcy attorney. Tax debts from recent years will definitely not be included in a bankruptcy, but it may be possible to include some that are over three years old.
Student Loans: Many people have been burdened with huge student loan debts in recent years, but these are almost never allowed to be included in a bankruptcy filing. Again, there are rare exceptions, but the point is to prove extreme difficulty and the bar for exceptions has been set very high. However, there are many organizations that can help those who are burdened with a lot of student loan debt.
As you can see, when deciding whether to file for bankruptcy, you need to consider the details of your specific situation and make sure you choose the right course of action as there are all of these situations where bankruptcy is not a good idea. This is why it is so important to find and speak to a reputable bankruptcy attorney who knows how it works and can advise you based on your particular circumstances.
Day One Credit: The Key to Your Fresh Start
It’s also surprisingly common that people who file for bankruptcy suddenly have to replace their car, which can be an added source of stress that they don’t need during a difficult time. Many people simply assume that an open or recently closed bankruptcy means they cannot get funding to buy a vehicle. Is not it! There are lenders who have auto loan programs specifically designed for bankruptcy customers. Day One Credit has put together a whole network of these lenders so we can help you by finding a bankruptcy car loan that suits your situation. Find out how it works on our Why Day One page, get answers to your questions on our Frequently Asked Questions page, or call us directly at 855-475-4725. We’re here to help!
At Day One Credit, we are experts in finding the best possible bankruptcy loans to help our customers buy quality used cars. We are not lawyers, we do not give legal advice and nothing we say should be taken as legal advice. Your first step in relation to bankruptcy should always be to seek advice from a qualified bankruptcy attorney.
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