Is It Better to Try and Settle Your Debts or File for Bankruptcy?
If your debts are overwhelming you, you may be considering bankruptcy, but is bankruptcy your best or only option? To determine if bankruptcy is the best way to resolve your debts, consult a North Carolina bankruptcy lawyer to discuss bankruptcy and your other alternatives. The key is to know your options.
If you are considering bankruptcy, you are not alone. More than 500,000 bankruptcies were filed in the United States in 2020. For some consumers, bankruptcy is the only realistic and practical option, but it may or may not be right for you. If you’re behind on car payments or house payments or owe back taxes bankruptcy or being sued by a creditor, bankruptcy may be right for you. Bankruptcy is often the option of last resort.
What does a bankruptcy entail? If you can’t pay your debts, what are your alternatives? If you’ll continue reading this brief discussion of debt relief options, these questions will be answered, but you will also need the personalized advice that a North Carolina bankruptcy attorney offers.
Is Debt Restructuring an Option for You?
If you need debt relief, one option that you should consider is debt restructuring. Debt restructuring may provide the “breathing room” you need. It typically involves asking (or having your attorney ask) lenders to reduce interest rates, extend due dates for payments, or both.
Debt restructuring can be a win-win for both sides. You avoid bankruptcy, and your creditors typically receive more than they would get if you declared bankruptcy. However, if you need help negotiating with creditors, it’s better to hire a lawyer than a debt settlement company.
A debt settlement company cannot take legal action on your behalf if you get sued by a creditor. It will only try to convince you to hire the company to settle your debts. Your attorney, on the other hand, will review all of your options with you and help you determine if debt restructuring is your best debt relief option.
What is the Mediation Option?
If you are sued by a creditor, filing for bankruptcy will put a halt to the lawsuit, but for many consumers, after a creditor files a lawsuit, mediation is a viable option. A creditor doesn’t want to go to court any more than you do because of the time and costs that going to court entails.
If you learn that a creditor is filing a lawsuit against you, ask your North Carolina bankruptcy lawyer if you should pursue the mediation option. In the mediation process, your lawyer will offer the creditor a payment plan that you are able to afford – in return for dropping the lawsuit.
Two types of arrangements can be made in mediation. One is a one-time lump sum payment. The other is a lower monthly payment. Your lawyer will tell the creditor how much you can pay each month and will try to find a monthly payment amount that works both for you and the creditor.
What Are the Consequences of Filing for Bankruptcy?
As mentioned previously, filing for bankruptcy is often the option of last resort. Bankruptcy will provide protections and benefits to families and consumers who need them, but filing for bankruptcy also entails some negative consequences.
You will have to qualify for bankruptcy based upon your income, expenses, household size, and the type of debt you owe. A bankruptcy remains on your credit report for seven to ten years. During that time, you may have some difficulty obtaining open credit card accounts or to be approved for a loan, depending upon your income and financial circumstances after the bankruptcy.
After the bankruptcy period is complete, your finances and your own personal situation will determine how successful you are at restoring your credit. Many people work hard for years to rebuild credit after a bankruptcy, but others are able to reestablish their credit after about a year.
However, if you fully understand the long-term consequences of filing for bankruptcy, bankruptcy may be the right option for you.
What Type of Bankruptcy Should You Choose?
If bankruptcy is your best or only option, there are two types. In a Chapter 7 bankruptcy, two things have to be determined, do you qualify for the chapter 7 based upon your income and do you have property that would not be protected by your property exemptions, (what you are allowed to keep). Your non-exempt property will be liquidated to pay your debts. A North Carolina bankruptcy attorney can help you determine if you qualify for chapter 7 and if your property is protected.
Chapter 7 bankruptcies “discharge” or eliminate unsecured debts such as medical debt, unsecured personal loans, deficiencies on repossessions, credit card debt and some taxes. However, a Chapter 7 bankruptcy cannot discharge debts such as student loans, some back taxes, alimony and child support, or any fines owed to a court.
You must pass a means test to file a Chapter 7 bankruptcy, but no means test is needed for a Chapter 13 bankruptcy. If you file a Chapter 13 bankruptcy, you and your bankruptcy attorney will submit a plan for paying none, some or all of your debts over a period of three to five years based upon your income, the type of debt you owe and property you own.
After reviewing your finances and meeting personally with you, a North Carolina bankruptcy attorney will recommend a Chapter 7 bankruptcy, a Chapter 13 bankruptcy, or an alternative to bankruptcy. Your attorney may even recommend doing nothing at all, at least temporarily.
What Else Should You Know About Bankruptcy and Its Alternatives?
If bankruptcy is your best or only option, you will be allowed to keep some and possibly all of your property and possessions as exemptions. How exemptions are determined is complicated in North Carolina, but your lawyer will explain the details and protect your rights at every stage of the bankruptcy process.
If bankruptcy is your choice, you are going to need personalized legal guidance and advice from a bankruptcy lawyer who routinely handles bankruptcy filings for consumers and families in North Carolina.
If you choose an alternative to filing for bankruptcy, your attorney will negotiate with your creditors privately or through the mediation process. Your lawyer will explain the pros and cons of each of these options and help you find the solution that best addresses your needs.
Resolve Your Debts and Get a Fresh Financial Start
Don’t try filing for bankruptcy on your own. A bankruptcy attorney will help you avoid mistakes that could cost you dearly. During and after the bankruptcy period, your attorney will also help you with suggestions for reestablishing your credit.
What’s important to know is that whether you choose bankruptcy or an alternative, your debts will be resolved and you will have a fresh financial start at the conclusion of the process. If your debts are overwhelming you, the time to contact an attorney about debt relief is now. The more information you know the better option you can choose.