Know When to File Bankruptcy Debt Consolidation

Know When to File Bankruptcy

November 10th, 2009 Admin Leave a comment Go to comments

Every year thousands of American consumers file for bankruptcy to get out of debt. Unfortunately, many of these filings are for debts that the individuals are no longer even legally responsible for. In addition, not all debts can be included in a bankruptcy filing.

The Purpose of Bankruptcy

Deciding when to file bankruptcy and whether or not doing so is the right choice, is a major financial decision that will affect an individual’s credit score and financial future for many years to come. According to Section 605 of the Fair Credit Reporting Act, a bankruptcy will appear on a credit report for ten years (seven for most Chapter 13 filings). Even if an individual files and then changes his mind later, the filing itself remains a part of public record and thus continues to damage his credit report for the given time frame.

When Bankruptcy is Not the Right Choice

When the majority of a consumer’s debts are old collection accounts or charge offs. Old accounts may be outside of the statute of limitations. Each state’s statute of limitations for debt collection varies, but if it is expired, an individual is no longer legally obligated to pay the debt–unless he files for bankruptcy (See The Statute of Limitations on Debt Collection).When credit score is a concern. While paying items late-or not paying them at all-will certainly lower a credit score, a bankruptcy will decimate it. A bankruptcy will not preserve a credit score, nor does it do away with late payments to creditors. Over time, a credit-savvy individual may be successful in having negative entries removed from his credit report, but he is unlikely to be able to successfully remove a bankruptcy.When an individual has extensive assets. A bankruptcy court will often require individuals to liquidate their assets–something that many creditors cannot do.When the majority of a consumer’s debt problems stem from unsecured debt. The worst case scenario for unsecured debts is that a creditor wins a lawsuit and is granted a judgment. A judgment does not give the creditor permission to take a house, car, or tax return. A bankruptcy court, however, will include these assets in the bankruptcy filing.When a consumer’s unmanageable debt comes in the form of student loans, child support or alimony. These types of debts cannot traditionally be included in a bankruptcy filing, although in rare cases student loans may be allowed (See The Bankruptcy Myth).

When Bankruptcy is the Right Choice

When a consumer is in danger of losing his home to foreclosure. A bankruptcy can successfully put a halt to a foreclosure at any time prior to the home being sold.When an individual has lost, or is in danger of losing, utility services due to nonpayment. Going without utilities can be dangerous, especially in extreme weather conditions. A bankruptcy court will force the utility company to reinstate utilities until appropriate payments can be settled upon.When a consumer has received a summons for a lawsuit over an old debt. Provided that the individual feels he is unable to fight the debt and cannot afford a wage garnishment, bankruptcy may be the wiser option.When a debt management plan is vital. The majority of consumers who file will have assets that place them in the category of a Chapter 13 bankruptcy. A Chapter 13 is a repayment plan. This grants the individual a solid form of debt management to learn how to budget in order to get out of debt.

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