Bankruptcy Tips and Hints: How & When to File Bankruptcy - Westgate Law

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Bankruptcy Tips and Hints: How & When to File Bankruptcy

Debtors who decide to take that huge step called bankruptcy often make one common mistake – they rush. They turn that huge step towards financial freedom into a mad dash without even considering the consequences and potential changes to their life and goals. Bankruptcy protection offers a great solution for most struggling with overwhelming debt and in today’s economy it’s not uncommon. Yet many debtors still feel embarrassed by a personal need to utilize the protection offered by bankruptcy. They see the bankruptcy process as something they should get over with as soon as possible so they can put it behind them. It’s good to look forward to the fresh start and the bankruptcy protection. The day you receive your discharge of debt will be a great day! But that doesn’t mean that bankruptcy is a mad dash. It’s still a huge step – one that you should take carefully and with a lot of thought. Bankruptcy has far-reaching effects that, in some situations, could mean it isn’t the right answer. Every debtor won’t feel the full benefit of a bankruptcy filing.

If you are considering filing for bankruptcy, be particularly careful in the following situations:

  1. A substantial portion of your debts has co-signers or co-debtors. People who were willing to co-sign on a credit account for you are most likely close friends or family. The contract they signed guaranteeing payment on your debt leaves them in a very difficult situation if you file bankruptcy. Debtors who wish to clear as much debt as possible as quickly as possible typically file for Chapter 7 bankruptcy. Under Chapter 7 bankruptcy, co-signers do not have any protection. You will no longer have any legal responsibility to pay the debt so the creditor on the debt will then turn to the co-debtor to collect. If you are in this particular situation, you could file for Chapter 13 bankruptcy instead which affords some protection for co-debtors.
  2. You have some debt you need cleared, but other creditors that you need to keep paying. If you have a lot of unsecured debt from credit cards that you need to include in your bankruptcy, but one large debt to a family member that are going to continue making payments on, you should not file for bankruptcy. If you are not going to list every creditor in the petition, you run the risk of going to all the trouble of filing only to have your case dismissed. Playing favorites with creditors when filing for bankruptcy by not including one or some of them along with the rest is called bankruptcy fraud. The Bankruptcy Trustee is going to see every last aspect of your finances – every financial record. Payments that you are still making will be obvious. The Trustee will notice. And there will be serious repercussions.
  3. A substantial amount of your debt is “non-dischargeable.” If you are considering filing for Chapter 7 bankruptcy to discharge all debt the first step is to determine what type of debt you are carrying. Auto loans and mortgages are referred to as secured debt. They must be paid. A number of debts have state or federal protection against discharge (i.e. child support arrears, tax debt, student loans, spousal maintenance payments, certain court judgments, etc.) If the majority of your debt falls into categories that are non-dischargeable, filing for bankruptcy may not do a lot of good.

If you are still unsure whether or not filing for bankruptcy is the best answer for your financial situation, please get in touch with one of the southern California bankruptcy lawyers at Westgate Law. We can help you determine your options.

About the Author

Justin Harelik

Justin has a singular goal: to get people out of financial distress and move them to financial stability and prosperity. He does this by combining 15 years of in-depth experience in bankruptcy, credit management, debt negotiation and student loan modifications, and he does it with both English and Spanish-speaking clients.

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