If you are nose deep in debt, bankruptcy may seem like the best next step. However, it’s important to stop for a minute and think if bankruptcy is right for you. Filing for bankruptcy is expensive, and you would be subjected to a complicated and possibly prolonged process in the courts. Clearly, you shouldn’t file for bankruptcy just because you can. Here are five things you should seriously consider before filing for bankruptcy:
1. Have You Exhausted All Other Options?
Is your debt so bad that you can no longer pay it, or is it too much that you don’t want to spend years repaying it? You should consider refinancing some of your loans, negotiating with creditors to reduce interest rates, or taking on a second job to increase your income. Creditors are often open to negotiations if you are on the brink of bankruptcy. You should exhaust all these alternative options before calling up an Atlanta bankruptcy lawyer.
2. Bankruptcy Does Not Eliminate All Debt
One of the biggest appeals of bankruptcy is that it eliminates debt. Actually, some forms of bankruptcy eliminate only some debt. That’s right; not all debt is forgiven by the courts. Under Chapter 7 bankruptcy for example, unsecured debt like credit card debt may be forgiven. However, other debts, like a secured vehicle loan, will not be. Some owed expenses, like child support or alimony, are never dischargeable under the law. Also, debts like student loans are only forgiven under very specific circumstances. Bankruptcy has no one-size-fits all model. It may not work for you the way you think it might.
3. Creditors Can Sue You Back
When you request to have at least some of your loans forgiven, you will have to confront your creditors under oath. Your creditors also have the right to attend your court meetings and ask you questions. This is called the “meeting of the creditors” session, and it is recorded. If a creditor is unsatisfied with the answers you provide, then that creditor has 60 days following the session to file a lawsuit against you to demand debt payment in full. So, even if the bankruptcy judge wants to forgive your loans, he or she cannot if the creditors sue you. You must be certain that you have a solid cause before filing for bankruptcy.
4. Bankruptcy Costs a Lot of Money
Bankruptcy lawyers do not work pro bono. In addition to court charges, lawyers will charge you significantly. In some states for some types of bankruptcies, the amount lawyers can charge is limited. However, fees can mount. If a creditor decides to sue you, then that would cost you a lot of money for the defense. Make sure you can actually afford bankruptcy filings without going destitute before proceeding.
5. Not a Squeaky Clean Slate
Your financial slate will not be wiped clean following bankruptcy, so to speak. Your credit rating will take a big hit. While it will improve over time, your records will always say that you have filed for bankruptcy. Initially, a low credit score will hinder your ability to borrow and find good employment if the employer demands good credit scores. You might not be able to get approval for things like creditor cars years afterwards.
All in all, you must carefully think about all of the above facts before filing for bankruptcy. Know all the consequences before you choose this option.