When Floridians are overwhelmed by consumer debt, the easy answer they will often get is to file for bankruptcy. The most common chapter for people with credit card debt and other issues related to it is Chapter 7. This is a liquidation bankruptcy that is supposed to clear the debts and give the person a fresh financial start. While that may or may not be fully accurate, it is not a solution to all financial challenges. Once the process is done, many people regret it and wish they had considered and found another alternative.
Bankruptcy all but destroys a person’s credit. Filing for Chapter 7 will remain on the person’s credit report for as long as a decade making it difficult to get new credit, get a mortgage or a car loan. Any property that is not exempt from being sold will be taken by the trustee for the bankruptcy and sold to pay back creditors. A person who owes child support and spousal support might be under the mistaken impression that filing for bankruptcy will clear these debts. It does not. These expenses are not covered under bankruptcy and they will still need to be paid.
It can also be embarrassing to file for bankruptcy as it is often necessary to explain to the judge how the situation spiraled out of control. People who filed for bankruptcy in the past 180 days and had the case dismissed due to a violation of a court order or having requested that it be dismissed after a creditor sought relief from the automatic stay, they cannot file again immediately. Some of the debts, such as a mortgage lien, must still be paid. Finally, the income requirements and disposable income could lead to the Chapter 7 being converted into a Chapter 13. With a Chapter 13, there will be a payment plan for three to five years, so the debts will remain in effect.
Clearly bankruptcy is not the answer to the financial challenges that many people face. Often, they do not want to file for bankruptcy because they feel as if they are ignoring their responsibilities. Fortunately, there are other options available. Having help from an attorney who understands how creditors work from their contact language to what they are willing to do to get as much as they can with written down debt is a strategy to avoid bankruptcy and get into a stronger financial situation without its stigma and long-term aftereffects.
Source: bankruptcy.findlaw.com, “Pros and Cons of Declaring Bankruptcy under Chapter 7,” accessed on Aug. 29, 2017