Filing for bankruptcy is a very useful way to gain protection from creditors and obtain a discharge of debt. But is it the best idea for everyone? Absolutely not; there are some who would be better off seeking out other options and bankruptcy alternatives.
Who SHOULD NOT file for bankruptcy protection:
Daisy is a 31 year old physical therapy assistant. She’s also struggling to pay her bills. When she gets back from a cruise to Ensenada with her girlfriends, she has $5,000 credit card debt to add to her $30,000 debt for her vehicle. She purchased her car new two years ago with her mom as a co-signer and it’s only worth $15,000.
Daisy isn’t able to cover the minimum monthly payments for her car AND her credit card. She’s thinking about filing Chapter 7 bankruptcy in order to receive the discharge of debt. It would get rid of her car payments (as long as she was okay with giving up the vehicle).
Filing for Chapter 7 bankruptcy might seem like a good idea at first, but it’s actually not the best idea. Daisy’s mother co-signed on her vehicle loan. That means that if Daisy were to file for bankruptcy, her mother would be responsible for paying the full balance of the debt. Rather than filing for bankruptcy, Daisy should start by discussing the situation with her mother (since she’s closely involved in the situation). It might be better all around for Mom to make a few monthly payments to buy Daisy some time and allow her to knock some of her credit card debt out decreasing the balance instead of the alternative that leaves Mom holding the entire bag on the car loan.
Daisy could also attempt to renegotiate her payment schedule with the creditor. This probably won’t work, but it’s worth a shot. It would also be a good idea to attempt to find a local credit union that might refinance the loan at a lower interest rate. Filing bankruptcy should be a last resort for Daisy.