Personal Bankruptcy Questions

What are the effects of declaring bankruptcy?  Well, first I would like to mention the possible effects of not filing bankruptcy when it should be a right option for you.

Consider this scenario which occurs all too often for many Americans who find themselves buried in debt.  A couple has a medical emergency and ends up owing tens of thousands of dollars because the expenses were not covered by insurance.  They look for advice from friends, family members, and other well meaning but often inadequate sources of information.  They might even look to professional services like credit counseling who do not always have the consumer’s best interest at heart.

What advice do they receive?  They are told that they should go to whatever lengths are necessary to pay off their debt, even if that includes cashing out the retirement plans and selling the house (or at least taking out a home equity loan).  Of course, they still owe a substantial portion on their mortgage and do not own the house out right.  Thus, the amount that they receive (although significant for them) is not enough to pay off their huge medical debts.

So after cashing out their most prized possessions which they have worked very hard to obtain for years, they still have not been able to pay off all of that medical debt.  After trying a variety of ways to get caught up (including part time jobs, loans from friends, and various other methods), they finally realize that they find themselves in a hole too deep to get out of without bankruptcy.  They seek advice from a bankruptcy lawyer and eventually end up declaring personal bankruptcy.

The problem is that they filed for bankruptcy after they had already lost their house and their pension plans, both of which are usually protected when filing chapter seven bankruptcy.  So they could have eliminated their debts without sacrificing their hard-earned positions.

Don’t get me wrong, there are serious consequences to face with bankruptcy, including a poor financial reputation (and credit rating), and possible defamation as this becomes a matter of public record.  But it may be the best way to protect your family from an even worse financial crisis, so you should discuss your options with a bankruptcy lawyer.