Bankruptcy: Who Would Want to File?

money 20Bankruptcy allows consumers who are faced with overwhelming debt to move forward with their lives knowing that they have legally resolved problems with their creditors.  While there are some debts, such as student loans, which are not automatically discharged by a bankruptcy filing, almost every type of consumer debt can be discharged in a bankruptcy filing.  Here are some life situations which have I seen in more than two thousand consumer bankruptcy filings:

For those who are “judgment proof,” but the lawsuits and phone calls continue.

When I use the term “judgment proof,” I am speaking about consumers who have no assets which could be used to satisfy creditors’ obligations.  Someone, for example, whose only income is social security or pension benefits.  Or someone who owns no real estate, or whose real estate is not even worth what is owed on the mortgage(s).  While these consumers gain no real protection from a bankruptcy filing, at least they can open their mail and answer their phones again.

To strip off a second mortgage.

Chapter 13 allows a consumer whose debt includes an “underwater” second mortgage on their home to strip off the unsecured second mortgage and treat it as an unsecured debt.  This has major potential to change the debtor’s prospects for keeping their home.  Unfortunately, the Supreme Court has decided that only Chapter 13 debtors, not Chapter 7 debtors, can take advantage of a lien strip.  For more information about this decision, click here.

To stop a foreclosure and take a breath before moving from a home.

Many people simply walk away from their underwater homes after foreclosure.  While this is an option, others want explore staying in the home rent-free until the sheriff’s auction, or having the security of knowing they are not liable for a mortgage deficiency.  Chapter 13 allows options for stopping the foreclosure and saving the home by catching upon the arrearage (past due mortgage payments).

To remove judgment liens.

In either Chapter 7 or Chapter 13, a non-consensual lien (judgment lien) can be stripped off.  This requires the filing of a separate motion and is not included in the basic bankruptcy fee agreement.

To reinstate a driver’s license post accident.

You need to be sure that the underlying accident does not involve allegations of driving under the influence of alcohol or drugs.  But I have filed many Chapter 7 petitions where the goal was to get the client driving again.

To pay taxes in a Chapter 13.

While taxes are not automatically discharged in a bankruptcy, Chapter 13 allows repayment with no interest or penalties.  Depending upon the size of the tax debt, this could save the consumer substantial amounts of money.  This is why Chapter 13 is a popular option for people with non-dischargeable tax debt.

To possibly discharge taxes.

It is simply a myth that tax debt can never be discharged in bankruptcy.  There are “timing” rules which must be met, measuring the date the bankruptcy was filed against the due date for the income tax return.  Not filing the tax return at all, by the applicable due date, could mean the tax debt cannot be discharged, as does engaging in intentional conduct meant to evade or defeat the tax liability.  But why not explore if the tax debt can be discharged, I have done this many times for clients who meet all of the criteria.

To hold off the student loan lenders.

Student loan debt is another type of consumer debt which is not automatically discharged.  I also provide help to clients in resolving student loan debt outside of bankruptcy.  But sometimes the client just wants some breathing room while they deal with their dischargeable debt, which will in turn make the student loan debt more manageable.

To discharge martial debt from a bad or forced divorce decree.

The end of a marriage can mean one spouse, or both, are left with debts and less income than they enjoyed during the marriage.  Bankruptcy can provide a fresh start.

To deal legally with debt without depleting retirement funds or home equity

It breaks my heart to see clients draining their retirement to pay credit card bills.  Not only do they leave themselves more vulnerable during retirement, they may incur tax debt as well.  Don’t they know that bankruptcy laws are designed to leave their retirement funds alone while the credit card is wiped out?  For more about property you get to keep in a bankruptcy, click here.

Restructure business debt after business downturn/failure

This nation thrives on entrepreneurs who chase their dreams by owning or starting a business.  But when it does not work out according to plan, bankruptcy can ease the sting of the failure and allow the owner to start again, this time without the debt load.

These are merely a few of the reasons people need to get a fresh start.  My clients have many others.  Call me today at 216-642-8234 to discuss your situation, the first consultation is free.

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