Tony Cross, Cross Law
Bankruptcy is often viewed as a daunting word, invoking images of financial ruin and destroyed credit scores. But, like many things in life, there are both pros and cons to this legal process. At Cross Law, we've been guiding Coloradans through their bankruptcy journeys for over 40 years. In that time, we've heard many concerns and misconceptions. Today, I'll shed some light on the advantages and disadvantages of filing for bankruptcy, and help you understand which type might be the best fit for your situation.
Is there a Downside of Declaring Bankruptcy?
Impact on Credit
The most common question we hear at Cross Law is, “how will this affect my credit?” It's a valid concern. Declaring bankruptcy does have an initial negative impact on your credit score. However, let's approach this concern with another question: “What credit?” Many individuals considering bankruptcy are already struggling with debt, missed payments, and dwindling credit scores. In such cases, bankruptcy might be the first step in a recovery journey.
The Credit Rebuilding Process
Post-bankruptcy, there’s a common myth that one should jump into acquiring a car loan to rebuild credit. While timely loan payments can boost your credit score, it's essential to approach new financial commitments with caution. Bankruptcy provides a clean slate, but you must be strategic in your steps post-filing to ensure a healthier financial future.
The Benefits of Filing for Bankruptcy
Halting Garnishments and Seizures
One of the immediate advantages of bankruptcy is the cessation of wage garnishments and the threat of losing one's home. This relief gives individuals breathing room to regroup and strategize their next steps without the constant fear of creditors.
Peace from Persistent Calls
There's an emotional toll in constantly dodging creditor calls. Bankruptcy halts these calls, providing not just legal relief, but also emotional and mental peace. It offers a chance to pause, reflect, and think about your next steps without being under constant pressure.
Chapter 7 vs. Chapter 13: Which is Worse?
The short answer? Neither. The two primary bankruptcy types - Chapter 7 and Chapter 13 - serve different purposes and are suitable for varied situations.We file the one that screams for your unique situation. Usually if available,we file a Chapter 7 as it is the easiest, fastest, less expensive bankruptcy. We file a 13 if we need 5 years to catch up home debt, you have filed a 7 in the last 8 years, you make too much money, you have marital debt that you maybe can get rid of, you have assets that do not fit the exemption scheme, or a few other reasons.
Chapter 7 Bankruptcy
Chapter 7 allows debtors to wipe out most if not all of their unsecured debt. In most cases, individuals pay nothing to their creditors. If you want to get rid of secured debts you can do that too, but the rule is that if you keep the car, the house, etc., you keep the debt. Otherwise we can get rid of those debts too. Eight years between Chapter 7 bankruptcies.
Chapter 13 Bankruptcy
There is always a Chapter 13 available. It allows bankruptcy even if you just filed another one. It allows bankruptcy even if you make a lot of money. It allows 5 years to catch up what you are behind on a home or car. Like Chapter 7, in most instances, individuals end up paying nothing to the unsecured creditors. There is a monthly payment and that may be as low as $60 per month. Mostly that is because of increased attorney fees as you are a client for up to 5 years.
The best type of bankruptcy for you depends on your specific situation, assets, income, and long-term goals.
Bankruptcy isn't a one-size-fits-all solution, nor is it the end of one's financial journey. It's a tool, a path toward a fresh start. At Cross Law, we are here to guide you through this process, helping you understand your options and making this government-given right work for you. Remember, life happens. And when it does, we're here to help.