5 ways bankruptcy helps

Bankruptcy, Chapter 7, Chapter 13Over a million people filed for bankruptcy in 2012. While a small number of those cases were businesses filing for strategic reasons, the vast majority of the cases were regular people filing because of money problems. I meet with people everyday who are thinking about filing for bankruptcy. I can tell you that it is rarely an easy decision and most often is one made reluctantly. Ultimately, I think people realize that the relief that bankruptcy offers is relief they need. Here are five reasons why bankruptcy helps.

1. Creditors Stop Calling

Creditors must stop all attempts to collect a debt the minute someone enters into bankruptcy. In fact, not only can they not call or write, they can’t repossess a vehicle or foreclose on a house. No more embarrassing phone calls at work or early morning calls on Saturdays and Sundays.

2. Pay Creditors Back on Better Terms

If you qualify for a chapter 13, you are allowed to pay your debts back based on your income and what you can afford. We’ve had clients pay as little as 2% of their overall debt back during bankruptcy (the other 98% usually gets wiped out). Even when clients pay back 100% of their debts, they save a ton of money because interest stops accruing on all of those credit cards. The credit card companies no longer decide how they get paid.

3. Catch Up on Your Mortgage Over Time

If you get too far behind on your mortgage, the mortgage company goes from wanting you to pay a little something to get caught up, to wanting it all. They often wont except any payments once you get too far behind (they decide how far is too far). As part of a chapter 13 plan, as long as the client can afford to begin making their regular mortgage payments, they can catch up on the arrears over a period up to five years. The mortgage company can’t foreclose and the client gets a little breathing room.

4. A Fresh Start

Some people qualify for a chapter 7. Qualifications are based on income and a few other unique circumstances. If a client qualifies, they can discharge most if not all of their debt (Discharge is just a $20 lawyer word that means the client doesn’t have to pay back a debt). Clients are rarely able to discharge IRS debt or student loans. There are a few other things that can’t get discharged but most clients in chapter 7 get rid of their debt and start over.

5. You Can Sleep

Every client is different and bankruptcy helps them all in different ways. This is the one thing that I hear from almost all of them. For chapter 7 clients, it’s knowing that they are going to be able to walk away from their debts and start over. Even when clients are required to pay back some portion of their debt in a chapter 13, knowing they have a plan for the future brings peace of mind. Being able to sleep is always nice.

We’ve all dealt with money problems, myself included. Bankruptcy is one of many options you’ve got when you’re trying to get things back on track. It doesn’t matter whether you decide to stick to a tighter budget or get an extra job, try and start fixing the problem today. And feel free to give me a call if you need some help.

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