The decision to file a Bankruptcy or to consider it is a business decision.
Corporations don’t fret about it. They look at the facts of their business. If it works best for them they don’t hesitate.
Payless Shoes recently filed a Bankruptcy and within a short time they immerged as a strong solvent company.
United Airlines and Delta Airlines filed bankruptcies. They are now strong and solvent companies making millions of dollars each year.
General Motors filed Bankruptcy. Not only did it save the American Automobile Manufactory Industry it is the 2nd largest automaker in the world.
Individuals and Small Businesses frequently hesitate or don’t file Bankruptcy for various reasons:
- They think that by filing a Bankruptcy it is an admission of failure. Some will just continue to be crushed by debt. Filing Bankruptcy is not a failure it is a solution.
- It is a stigma. Even without knowing it you have friends, relatives, and co-workers who filed Bankruptcy. Even if you know someone who has filed Bankruptcy do you really think less of them?
- Filing Bankruptcy is a moral problem. Consider the credit industry: they are ruthless in collecting debts and have no thought if they will ruin someone’s life. Our current President has been involved in 4 or 5 bankruptcies. He has said Bankruptcy is a business tool.
- It will ruin my credit. Generally when considering Bankruptcy one’s credit score is low. Studies show that within 6 months of filing a Chapter 7 credit scores jump and will likely continue to jump. After 2 years if you pay your bills on time you can return to a score of 725 to 750.
- I won’t be able to get credit in the future: not true. After decades of helping clients file Bankruptcy I know so many of them now have bought houses, good cars and have credit cards. Credit will be offered to you right after filing a Chapter 7 bankruptcy. But, of course, one has to be very cautious going forward.
- I will lose my house and/or car and/or possessions. This very, very seldom happens. For 99% the net value of assets is well under allowable exemptions. If one has assets like equity in a home over and above allowable exemptions a Chapter 13 can be filed. Even if one has assets a Chapter 13 plan can have more affordable payments.
- I owe money to the IRS. IRS debt can often be discharged in a Chapter 7. If all or part is not dischargeable a Chapter 13 allows a payment plan without future interest nor penalties.
- My income is too high for a Chapter 7. For Consumer Debtors there is “Means Test.” Skilled and experienced lawyer can defeat it or minimize the impact. Skilled and experienced lawyers have very often defeated the Means Test to allow clients to file a Chapter 7. Many other so-called high income clients pay less than 100% of their debts over a period of 5 years. Even if you have to pay all creditors back 100% you stop future interest with an affordable monthly payment. See: this link.
- Creditors have told you that you have contractually agreed not file a Bankruptcy. Such contract clauses are void. Creditors cannot stop you from filing Bankruptcy. See 1 U.S.C. § 524(a)(1) and (2)
- I am trying to get a Loan Modification with my mortgage company. Neither a Chapter 7 nor a Chapter 13 is a deterrent obtaining a Loan Modification.
Time after time clients tell me “I don’t know why I waited so long?”
The issue for individuals should be to look at their finances. With my current income and with ordinary living expenses can I repay my debts in a period of, say, 3 years? Look at the math: assuming an average interest rate of 19% and paying the minimum of 4% it will take 137 months (11.4 years) to pay it to zero. Considering Bankruptcy is a business decision the same as Corporations: is it in my best interest?
Most lawyers who concentrate their practice in Consumer Bankruptcy and Small Business Bankruptcy offer Complimentary consultation. You can look at the options and make your own decision.