Bankruptcy is a legal proceeding to either wipe out the debts you owe or pay the debts back at a lower rate. Filing a bankruptcy can sometimes be the best way to handle overwhelming debt but how do you know when it’s time to file bankruptcy?
YOU HAVE A FORECLOSURE, REPOSSESSION OR GARNISHMENT PENDING
Filing a bankruptcy will stop pending foreclosures, repossessions and garnishments automatically without further legal proceedings. Furthermore, a bankruptcy filing will prevent your creditors from starting those legal proceedings against you. This is usually the best reason to file a bankruptcy. Even though you may be trying to work our payment arrangements or modifications of the original debt, your efforts generally will not stop the creditors from continuing a foreclosure, repossession or garnishment. Other than paying off the debt entirely, bankruptcy is the only way to legally stop these proceedings. Filing timely is critical, however. In the case of a foreclosure or repossession you must file before the foreclosure or repossession actually happens.
YOUR DRIVERS LICENSE HAS BEEN REVOKED DUE TO AN AUTO ACCIDENT
If you have lost your drivers license because you were in a car accident where you were uninsured, or have a judgment against you as a result of the accident, filing a bankruptcy will allow you to discharge the debt from the car accident and get your driver’s license restored. If the car accident was as a result of a DUI, however, you may have a hard time discharging the debt. If your job requires you to have a driver’s license, filing bankruptcy may be the best way to keep your job.
YOU HAVE A HIGH INTEREST RATE ON YOUR SECURED LOANS AND CAN’T REFINANCE
Sometimes, you have greater flexibility with your secured creditors in a bankruptcy. For instance, if you have a car loan with a high interest rate, Chapter 13 bankruptcy will allow you to lower the interest rate to a more reasonable rate and still keep the vehicle. If you have a co-signer, however, your co-signer may have to pay the difference between the old rate and the new rate.
YOU HAVE TWO MORTGAGES BUT CAN ONLY AFFORD ONE
A chapter 13 bankruptcy allows you to discharge a second mortgage if there is no equity to secure the loan. This means that if you owe more on your first mortgage than the property is worth, your bankruptcy attorney may be able to avoid the lien on the second mortgage. This will change the debt from a secured loan to an unsecured loan which could be discharged.
YOU CAN NO LONGER DEAL WITH THE HARASSMENT FROM CREDITORS
Federal law prevents creditors from engaging in harassment to collect the debt you owe, however, not all creditors follow the law. Some creditors will contact your friends and family members to collect your debt or call you relentlessly. Sometimes the only way to stop the aggressive creditors is to seek legal protection.