Although I categorize myself as bankruptcy attorney in the Greenville, SC area, I consider bankruptcy the last option. I don’t see anything wrong with filing a bankruptcy and it is often necessary to provide a fresh start; however, with the social stigma and credit damage I avoid filing bankruptcies when possible. Unfortunately, many times a bankruptcy is a debtor’s only option because he simply waited too long to do anything about his situation. Below are a few reasons you should take steps to fix your financial situation sooner rather than later.
More Expensive to Climb Out of Debt
The number one reason a person should not wait to do something about their finances is because the longer they wait the more expensive and less likely fixing their situation becomes. An experienced lawyer can usually convince a creditor to settle their debt for a lump sum payment of around fifty percent (or less) of the debt owed. However, the longer a person struggles to make payments the more the debt grows. Obviously, a larger debt requires a higher settlement payment.
For example, a debt of $2,000 dollars can be settled for a lump sum payment of $1,000, which is manageable for most people. However, let’s assume that someone fails to address this same $2,000 debt for months or even years and the debt is allowed to grow. After a few years of more borrowing, penalties, interest, and maybe even attorney’s fees, the debt has grown to $10,000. To settle this $10,000 debt a person would have to make a lump sum payment of around $5,000. Most people in debt can’t make such a payment, thus a bankruptcy has become their only option because they waited too long to address their debt problems.
More Likely To Lose Secured Property
Secured assets are assets that have a lien on them such as a house or an automobile. The creditors who have these liens take the liens in order to protect themselves against non-payment. This means that these creditors do not have to wait to be paid, but can seize the property, sell it, and apply the proceeds to their debt. Creditors would rather not have to exercise their rights against the property, but will if they feel it is the only way to get paid. It is important not to get behind on these debts because once the creditors initiate a property recovery process they are not likely to stop the process to give a person a chance to pay. Once creditors determine they will only see a recovery by repossessing a car or foreclosing on a house, they rarely change their mind. If someone gets behind on a secured debt it is important they are proactive and attempt to work out something with a creditor before they choose to seize the property.
Furthermore, a Chapter 13 bankruptcy (read our Consumer Bankruptcy Overview blog for the different types of bankruptcy) allows a person to catch-up their missed payments (arrears) over a 3-5 year period. This means that you can stop a foreclosure by proposing to pay all of your missed payments over a period of 3-5 years while maintaining your regular monthly mortgage payments. This proposal to repay must be approved by the Bankruptcy Court. The Bankruptcy Court will only approve this plan if they believe that the person can actually make the proposed payments. Obviously, a person’s ability to make their payments depends on the amount of the payment and the farther behind a person is the more the monthly payment will have to be to catch up.
As an example, let’s assume Person A has a $1,000 per month mortgage payment and is 6 months behind on this payment. Also, let’s assume that Person B has a $1,000 per month mortgage payment, but is 15 months behind (which is not nearly as uncommon as one would think). In a Chapter 13 bankruptcy, Person A only has to repay $6,000, whereas Person B has to repay $15,000. Assuming that Person A and Person B both choose to repay their debt over 5 years (60 months), Person A’s Chapter 13 payment is $100 whereas Person B’s Chapter 13 payment $250. When working on an already tight budget, the extra $150 payment could cause the Bankruptcy Court to deny the Chapter 13 plan.
Lose Protected Assets
Certain assets are protected under South Carolina Law. For instance, a person’s retirement accounts are protected from creditor’s and can never be taken from a person. However, often times a person in debt will voluntarily remove money from their retirement accounts to pay their bills. Usually this results in delaying the inevitable rather than fixing a person’s financial situation. I always advise my clients to never use their protected assets to pay their bills because it is highly likely that they will still owe the debt and no longer have their retirement accounts. A lose-lose situation for the clients. A person should never turn a protected asset into an unprotected asset, something an experienced debt-relief lawyer can help you with.
No matter your financial situation, it is important to be proactive. Many people wait until it is too late to take charge. An experienced bankruptcy/debt-relief attorney can help you determine your best course of action, but you can make your path to debt relief much smoother if you don’t wait until it’s too late. If you are in need of the assistance of a debt relief professional don’t hesitate to contact my office at 864-399-7888, email me at Jason@JasonWardLaw.com, or fill out our request a Free Consultation form.