When Should I Consider Filing for Bankruptcy?

Credit card debt is a fact of life for many of us. And if you are behind on your bills and have started receiving letters from debt collectors demanding immediate payment, you might wonder if filing for Chapter 7 or Chapter 13 bankruptcy is the right move. While bankruptcy does afford many debtors a “fresh start,” it is not necessarily the right answer depending on your exact financial situation.

What Type of Debt Do You Have?

Not all debt is created equal. For example, some debts are secured by collateral such as a mortgage on real property or a car loan. Most consumer debts, such as credit card, are unsecured. In the case of unsecured debts, a creditor must obtain a court judgment before enforcing its rights against you. In other words, your credit card company cannot simply seize your bank account if you miss a single payment.

A secured debt holder generally has an easier path to collecting on a debt. If you fail to make payments on your car loan, the lender can simply repossess the vehicle, in most cases without even having to obtain a court judgment first. A mortgage lender can obviously foreclose on your house and sell it at auction.

The types of debt you have play an important role in deciding whether to file for bankruptcy. For example, if you are faced with losing your house or car, a Chapter 13 bankruptcy filing can buy you valuable time to renegotiate with the lenders. A Chapter 13 bankruptcy is designed to “adjust” your debt so that you can keep your property while spreading out the loan payments over a 3- to 5-year period.

In contrast, if your debt is entirely unsecured—i.e., credit cards—than a Chapter 7 bankruptcy is likely a better option. Chapter 7 provides for outright discharge of most unsecured debts. This means you will not have to make any further payments, and in many cases you will not even lose any personal property.

Is Bankruptcy Even Necessary?

Under Florida law certain assets are exempt from debt collectors even if you do not file for bankruptcy. This includes any equity you have in your home (subject to certain restrictions on the size of your property), up to $1,000 in the value of your car, and $750 per week in wages if you are the head of your household. Certain public benefits, including Social Security and workers’ compensation, are also exempt from debt collection.

If all of your assets fall within one of these exempt categories, bankruptcy may not be necessary, because even if your unsecured creditors obtain a court judgment against you, they will not be able to enforce it. You will still face negative ramifications on your credit history, but keep in mind, bankruptcy also affects your credit score. But if you can demonstrate your inability to repay your creditors right now, they may be willing to renegotiate if they know a judgment would be worthless.

A Florida Debt Relief Attorney Can Help

Bankruptcy should always be a last resort. A Miami bankruptcy attorney can explain your options and help you come up with a plan to address your debt problems once and for all. Contact the Law Office of Julia Kefalinos if you need to speak with someone about your debt situation right away.