Chapter 7 bankruptcy is often a harrowing decision. Even if you are already facing significant financial difficulty, embarrassment and fear often affect the decision. Every bankruptcy attorney in Montgomery County, TX knows there is nothing easy about filing for bankruptcy, and every client must weigh the pros and cons. Here is what you need to consider with bankruptcy:
- Need for financial relief: The biggest pro to chapter 7 bankruptcy is the immediate relief from debt. All collection calls cease, and pressure from medical bills and credit cards is gone. People often report finally sleeping through the night and feeling free from their financial burdens. If your debt causes significant stress that affects your health and quality of life, it is likely a good idea to consider the relief offered by bankruptcy. Many people believe this advantage alone makes all the disadvantages worth it.
- Credit scores: If your credit score is below 600, bankruptcy will actually improve it. Erasing debts often works better than letting them linger or even paying them off one by one. Once your discharge goes through, there are many options for rebuilding credit. However, if your credit score is above 700, bankruptcy will cause a considerable drop. If your credit score is good, you may want to find a repayment program rather than look into bankruptcy.
- Threat of wage garnishment: Once your creditors secure a judgment, they can garnish your wages up to 25 percent. If you are already struggling to pay bills, this is often devastating. Filing bankruptcy stops garnishments in process and will also prevent one from occurring in the future. If your creditors sued you and now have a judgment, bankruptcy is often the best course of action to ensure you do not suffer any further drains on your income.
- Student loans: Unfortunately, filing bankruptcy will not erase your student loans. There are rare cases where you can show “undue hardship” and receive partial discharges, but those require drawn-out court procedures and thorough scrutiny of your income and expenses. Barring disability and poverty, it is nearly impossible to secure a hardship discharge. However, addressing other debt, like car payments, credit card debt and past-due medical bills, can make it easier to stay current on your student loans. But if your only debt burden is student loans, bankruptcy will not help at all.
- Assets: Most Chapter 7 bankruptcy cases are “no-asset” cases. This means that you do not own anything substantial that is worth more than the exemptions allowed in your case. However, if your home has significant equity or you own valuable property that is not covered by exemptions, you could lose those in a bankruptcy filing. In an attempt to pay off at least some creditors, trustees will liquidate assets to produce funds. If that is the case with you, consider bankruptcy only if you are willing to lose property.
James R. Jones, Attorney at Law is a Chapter 7 bankruptcy attorney serving Montgomery County, TX. If your financial situation is out of hand and bankruptcy seems like it might be an option, contact our office today to schedule a consultation.