When you are struggling under the weight of debt, filing for bankruptcy can seem like the answer to all of your problems. There are plenty of good reasons to file for bankruptcy, but here are the top 4 reasons bankruptcy might not be right for you.
1. It’s the wrong kind of debt
There are some kinds of debt that the court looks at differently. Certain debts cannot be considered part of a bankruptcy filing, except in the most extreme cases. If the majority of your debt falls into one of these areas, bankruptcy may not be helpful for you at all. Debts that cannot be discharged in bankruptcy under normal circumstances include:
- Income Tax Debt
- Child Support
- Student Loans
- Court Ordered Debt
2. Collectors are harassing you
One of the biggest downsides to overwhelming debt is the constant harassment from debt collectors. However, if the sole reason you’re considering filing for bankruptcy comes down to eliminating debt collection calls, there is a better way. The Fair Debt Collection Practices Act (FDCPA) requires debt collectors to stop calling you if you ask them to. It also prevents them from calling people you know in an effort to “track you down.” Simply telling collectors over the phone isn’t enough, though. Send collectors a certified letter requesting that they cease calling. If any employee of that company calls you after receiving your letter, except to notify you that they are suing you or stopping collection, you can turn the tables on them. Some people have found they can make a bit of money back by suing collection agencies for breaking the FDCPA. Recording phone calls and keeping collection letters from companies who break the rules can give you a leg up when you file a suit against them.
This rule doesn’t apply to the original lender, however. The original lender is in a “business relationship” with you and is permitted to contact you regarding your account. However, these companies are usually not nearly as aggressive (or aggravating) as collection agencies.
3. Blood from a turnip
Creditors can’t take money you don’t have! Some types of income cannot be touched by creditors. Aside from Social Security, unemployment, or welfare, you are safe from most collections. With the exception of unpaid taxes, back child support, and government-guaranteed student loans, creditors cannot garnish your income, seize your assets, or put a lien on property you don’t have. In this case, there may be no point in filing for bankruptcy.
4. A lot of little debt
If your debt is primarily unsecured, you may be sweating the small stuff. Unsecured debt is, essentially, money that was lent with no collateral, such as medical bills and credit card debt. There are ways of dealing with these types of debt that do not include bankruptcy if the amount is small enough.
- TALK THEM DOWN – Even lenders know that something is better than nothing. Many lenders or collection agencies are willing/authorized to take a “lump sum” payment for a portion of the debt’s value. You may be able to get rid of the debt with a simple conversation and a one-time payment.
- RENEGOTIATE – Often, lenders are willing to renegotiate the terms of the debt to reduce your interest rate or payment terms. If you can come to an agreement that you can live with, you and your lender will be happier.
- JUST DON’T – While not the best option, there are instances in which you can simply stop paying and communicating with a lender altogether. Some lenders, believing the debt to be uncollectible, will simply write it off. This generally only works, however, if the debt is small.
- USE THE “B” WORD – Bankruptcy, that is. If a lender believes that you may file bankruptcy, they will often be more likely to negotiate with you because they believe they will get better terms that they would receive in a bankruptcy settlement. The downside to this is that they are probably correct. Without a bankruptcy attorney working on your behalf, you may not be aware of what your rights are. This could mean you end up paying more than you would have to pay if you did work with a bankruptcy lawyer.
When all is said and done, filing bankruptcy is not for everyone. However, only an attorney who is experienced in handling bankruptcy cases can give you all of the information you need to help you determine whether filing bankruptcy is the right choice for you. At Hall & Navarro our team can help you decide. Our staff has decades of experience with bankruptcy cases. We have seen the best and worst reasons for filing bankruptcy, and we can help you decide if it is the best choice for you.