When I first meet with my bankruptcy clients almost all of them tell me that they have been thinking of filing bankruptcy for a very long time but have struggled to finally make the decision to pull the trigger. It is understandable. No one wants to file bankruptcy. But sometimes, it is necessary and can really jump start your financial recovery. If you are in the stage of thinking about filing bankruptcy here are five things to consider before you make the jump.
#1 – Bankruptcy is Not Painful
After my clients have gone through the bankruptcy process many express to me how smooth the process was. Part of that is my approach to bankruptcy. If we take the time to get all of the necessary information and prepare the bankruptcy petition with a lot of attention paid to the details, the actual filing and process can be very smooth. Another reason is that the bankruptcy court is very streamlined. Millions of Americans have filed for bankruptcy and the court is designed to handle a large volume of cases.
#2- Bankruptcy is not Painless
While the process is generally smooth the process may not be entirely painless. If you think about it, the power of bankruptcy is truly incredible. I have had clients with over $100,000 in credit card debt that are able to eliminate it completely and start over. Without bankruptcy those debts would literally haunt them for the rest of the lives.
In exchange the bankruptcy court requires a few things. First, that you be completely honest with the information they request from you. Failing to disclose required information can lead to a very painful bankruptcy experience. Next, if you have assets that are not protected under your state exemption laws you may lose them. For instance here in Arizona often those filing bankruptcy will lose a portion of their tax refund. The money will be taken and given to your creditors.
It sucks to lose that money, but in the grand scheme of things if I told you that you could eliminate all of your debt if you gave up your tax refund, would you? Of course you would.
Finally, you are expected to play by the rules. If the bankruptcy court or the bankruptcy trustee need documents, you need to comply. If a court date is set, you are likely going to need to be there. I understand that the life is busy and this just adds another layer, but if you want the prize, you have to play by the rules.
#3 – You Will Recover More Quickly Than You Think
Bankruptcy stays on your credit report for ten (10) years. A full decade. However, bankruptcy does not mean ten years of no credit. In fact, many of my clients are shocked that they are getting car loan offers and credit offers in the mail while their bankruptcy is still pending!
While I don’t sugar coat that bankruptcy is a serious negative mark on your credit report, most people recover much more quickly than they initially think. For instance, FHA will provide a home loan two years after the chapter 7 bankruptcy is discharged (completed). Many other private lenders will loan you money on a house in three to four years after your bankruptcy is finalized. If you can buy a house, you can likely get credit for most things.
#4 – Use a Bankruptcy Lawyer
This one is self-serving. But even if you don’t use me, hire a bankruptcy lawyer to help you though the process. Notice I said a bankruptcy lawyer. Don’t hire just any attorney or your neighbor who happens to be a lawyer. Find someone who practices bankruptcy law day in and day out. A good resource to finding bankruptcy lawyers in your area is through the National Association of Consumer Bankruptcy Lawyers (NACBA).
Even if you think your case is pretty straight forward, hire a lawyer. Bankruptcy laws are full of all types of legal landmines that can prove disastrous for the unaware. By trying to save a few bucks you may end up costing yourself big time.
#5 – Don’t Delay
The biggest mistake I see with most people who file bankruptcy is that they waited too long to start the process. Again, it is understandable. But you need to really evaluate your finances and try and make an objective determination if can realistically repay your debts.
A good way to determine this is to meet with a bankruptcy attorney. Most lawyers offer a free consultation and a good bankruptcy lawyer will never steer someone into a bankruptcy case that shouldn’t be there.
Before you drain that retirement account to pay off credit card debt, consult with a professional who can give you sound advice. You don’t want to be in a situation where you have blown through your 401(k) trying to avoid bankruptcy and end up having to file anyway.
What are some of the concerns you have about filing or bankruptcy?