Bankruptcy isn’t always the best choice for everyone who finds themselves with bills they can’t pay.
Let’s look at some of the other ways to deal with your debts.
If everything you have now or expect to receive is protected by exemptions, you have nothing that a creditor could take from you.
You are, in legal slang, judgment proof.
Often, the elderly are judgment proof. Social Security is protected from nearly all creditors. Personal property generally has little value and is exempt from claims of creditors.
Two questions present themselves:
- Is the present financial state expected to continue into the foreseeable future. Judgments have long lives.
- Can you live with the hassle of attempts by clueless collectors to get something from you?
If the answer to both questions is yes, you can get by without bankruptcy.
What do you own?
When you have a substantial net worth, above the available exemptions, bankruptcy exposes all that value to payment of your creditors. Your problem may be liquidity rather than insolvency.
Bankruptcy law generally expects that creditors get 100% of their claims before the debtor getsto keep anything other than exempt property. Filing bankruptcy will assure that every creditor who files a claim gets paid.
It may be possible to settle outside of court with creditors for less than full payment. Watch out, however, for the tax consequences of debt forgiveness outside of bankruptcy.
If you or a surrogate can negotiate deals, and the cancellation of debt income issue doesn’t impact you, bankruptcy isn’t necessary. [Consider the story of the oh-so-cheap Chapter 13].
Debt dies of old age
Most debts except federal student loans have an expiration date: the statute of limitations makes the debt unenforceable in the courts.
If your debt is very old, or years have gone by since there was any activity on the debt, creditors may be unable to sue you to collect.
When the statute of limitations has passed, collectors have only annoyance and shame to induce you to pay.
When lifestyle changes possible
The smaller your total debt, the younger your age, and the larger your income, the more likely it is that you can pay your debts without involving the courts.
You can only file Chapter 7 bankruptcy every 8 years. The interval between Chapter 7 discharges was increased by the bankruptcy “reform” act of 2005.
You don’t want to play that very valuable ace of trump on circumstances that can be resolved otherwise. You may need bankruptcy relief in the future. You hope not, but it’s possible.
Reputable credit counseling agencies can help you evaluate whether you can get out of debt on your own, or with their help.
No one wants to file
If you fall into one of these categories, you can probably stay out of bankruptcy.
But consider that, if you are here, reading this, it is far more likely that you would benefit substantially from bankruptcy relief, and are reluctant for all the wrong reasons.
Image courtesy of Wikimedia and Geograph-UK