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When Life Gives You Lemons Should You File For Bankruptcy?

We all know life is not easy. In so many instances it seems you should just throw in the towel. But when does it make the most sense to file for bankruptcy? Below we’ll discuss some large life occurrences when considering bankruptcy might be your best option.

When Life Gives You Lemons Should You File For Bankruptcy?

Job Loss

Job loss often results in the inability to pay your bills. If that happens you’ll want to protect your assets.  A retirement account is protected in the bankruptcy, but your house might be another story. A bankruptcy attorney can advise you regarding what steps to consider and often the timing of the filing is critical so you’ll want to reach out to a bankruptcy attorney as soon as you are even considering bankruptcy following a job loss.

Illness and Medical Bills

An illness in the family can often result in racking up large, unreimbursed medical bills, and other significant debt. You should consult with a bankruptcy attorney to discuss how to protect assets, including your home and retirement account if you or a family member is dealing with illness and large medical debt.

Considering Divorce 

Spouses that have racked up a large amount of debt and are now seeking divorce might benefit from jointly filing Chapter 7 bankruptcy. Eliminating debt leaves more available funds to support the two households and can also eliminate potential grievances that might come from dividing debt during divorce proceedings.

Chapter 7 and Chapter 13 Bankruptcy

Chapter 7 Bankruptcy

Chapter 7 is the most common form of bankruptcy and is commonly referred to as “straight bankruptcy.” Under Chapter 7, assets are sold off so that the proceeds can go to paying debt. All proceeds from the sales of those assets are handed over to a trustee, who then pays down any and all creditors. After all creditors have been paid off they are no longer able to collect funds directly from you and your debts are cancelled, meaning you are no longer responsible for them. Chapter 7 is a good option for people dealing with the following:

  • You unable to repay your debts
  • You have debts that do not have co-signers
  • You are going to be sued by creditors

Chapter 13 Bankruptcy

Chapter 13 reorganizes debt so that you are able to pay back debts over the next three to five years. This pay-back plan is called a debt repayment schedule. Based on your income, and how much you owe, you’ll repay 10-100% of the debt you owe.  Chapter 13 is a good option for people dealing with the following:

  • You have already filed Chapter 7 within the past six years
  • You have debts that have c-osigners
  • You are able to re-pay your debts within three to five years
  • Your income has disqualified you from filing for Chapter 7
  • You need relief from impending collection proceedings or you want to pay your creditors back but are currently unable to

Pros and Cons of Bankruptcy to Consider

As with any major decision in your life, there are pros and cons of filing bankruptcy. Below we discuss the advantages and disadvantages of filing for bankruptcy. As always, it’s advised you work with a phoenix chapter 7 bankruptcy lawyer that can help advise you.

Pros of Filing Bankruptcy

One immediate advantage that helps debtors when they file for bankruptcy is the “automatic stay.” This motion alerts creditors that they must stop their efforts to collect money from debtors. This stay is what stops creditors from calling you! Under an automatic stay, creditors are not allowed to call, send collection letters, file lawsuits, garnish wages, or seize assets – except for in specific situations such as the collection of alimony and child support payments.

The biggest “pro” of filing bankruptcy is that a court discharges your debts. That means that certain debts will not need to be repaid. This, of course, is dependent on the form of bankruptcy you file: either chapter 7 or chapter 13.

Cons of Filing Bankruptcy

One “con” of bankruptcy is that while it will discharge most debt, it does not discharge certain debt, such as mortgages, student loans, taxes, alimony, or child support. While student loan debt has been forgiven in extreme cases, for the most part, it is never discharged in bankruptcy. Additionally, a debtor can lose certain nonexempt property in a bankruptcy filing because a court orders it to be sold.

Bankruptcy will also have an affect on your credit score. While your credit might already be low because of delinquent payments, once a bankruptcy is filed, it’s required by the national credit reporting agencies that it appears on your credit report. A chapter 7 bankruptcy will stay on your credit report for 10 years and a chapter 13 will stay for 7 years.

The impact on your credit can hurt your future ability to qualify for a future loan or credit card. It might also affect your ability to be hired or secure living arrangements. Some employers and future landlords evaluate a persons credit score to determine if they are good candidates.

Working with a Bankruptcy Attorney

Bankruptcy can be an overwhelming process. That’s why we advise that you work with a phoenix chapter 7 bankruptcy lawyer that is familiar with various debt repayment options. We are committed to helping our clients understand their rights and options under the bankruptcy law and developing the debt relief solution that makes the most sense for each individual. We invite you to call (602) 648-3274 or contact our Arizona office to schedule a free initial consultation.

AZBK Lawyers

668 N. 44th St., Ste 320, Phoenix, AZ 85008

(602) 648-3274

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