When you are having financial problems, you may feel that there is a stigma attached to filing bankruptcy. As a result, many people try other options first, such as borrowing money on available home equity credit lines, cashing out retirement accounts or even borrowing money from family or friends, before considering bankruptcy. Unfortunately, in reality, doing any of these things instead of filing bankruptcy can come back to haunt you.
Although it is natural to view bankruptcy as a last resort, it is often the best option for those who are deeply in debt. Here are four reasons why you should not delay in considering bankruptcy as a solution to your debt problems:
· You can stop wasting money on monthly payments: The average person struggling with debt typically has credit card and related debts in the $20,000.00 range. In most cases, accounts in default accrue interest and penalties at an effective annual rate of 29%. Think about that. To the average person, this means a monthly payment of almost $485.00 just to pay the interest and penalties! Talk about spinning your wheels. If you think that’s bad, the result could be even worse if you cash in an IRA, 401(k) or other retirement type account. Why? Withdrawals from such accounts are counted as income (for tax purposes) in the year of the withdrawal. Moreover, there is also a 10% excise penalty for early withdrawals. By way of example then, withdrawing $20,000.00 would result in an average of $6,000.00 in taxes and penalties. If that’s not bad enough, all monies in these retirement type account are EXEMPT from creditors in a bankruptcy, and can be protected while eliminating your debts. In most cases, doing any of the above simply isn’t worth the results. However, filing bankruptcy will discharge (eliminate) your debts, protect your retirement and personal assets, and allow you to focus on getting your finances back in order with a financial “fresh start”.
· It will help with foreclosure: If you are facing foreclosure of your home, bankruptcy is one of the most effective solutions available. Specifically, it will stop the foreclosure process immediately, giving you time to figure out how you will save your home. Filing Chapter 13 bankruptcy will allow you 3-5 years to catch up on missed mortgage payments. In some cases, you may even be able to eliminate your Home Equity Loan or second mortgage. However, when you are facing foreclosure it is important to act quickly, as filing bankruptcy late in the process may be ineffective.
· You can avoid collections lawsuits: If you fall behind on your bills and do not file bankruptcy, it gives your creditors the opportunity to file lawsuits against you, which can be time-consuming, costly and result in a judgment against you. Once a creditor obtains a judgment, they can move to attach any of your assets, such as your bank account, car, etc. In fact, a judgment even enables a creditor to garnish your wages at work. However, if you file bankruptcy, your creditors may not sue you for unpaid debts. Additionally, any pending lawsuits or collections, such as attachments or garnishments against you are immediately stopped upon filing.
· You can get a head start on rebuilding your credit: For most people in debt, the longer they wait to get help, the more in debt they become, which can ruin their credit ratings further. Although filing bankruptcy has a negative effect on your credit rating, the effect is temporary and generally not as negative as simply doing nothing. Filing bankruptcy will allow you to quickly get out from under your debts and begin rebuilding your credit.
If you are in debt, you may be unnecessarily harming yourself further by waiting before taking action. Think about it-it makes perfect sense. When you feel ill and delay seeking medical attention, you generally feel worse the longer you delay. The same is true for your financial health. The experienced bankruptcy attorneys at Mariano & Coiro, PC can advise you further on your options and help you take the first steps towards a new financial future.