The process of deciding whether or not to file for bankruptcy can often be longer and more painstaking than the process of filing the bankruptcy case itself.
It is, for many, not an easy decision.
An enormous effort has been made by the financial industry for many years to portray the filing of bankruptcy as a shameful and even immoral undertaking. If you file for bankruptcy, you are, these powers want you to believe, a bad person. You have failed. You should be embarrassed for even considering the thought.
Why does the financial services industry want you to believe this?
Because the players within that industry make money if you slog along, paying high-interest credit cards, allowing yourself to be sued and garnished whenever they can get away with it.
If you file for bankruptcy—they don’t. It’s that simple.
It’s important, when facing a very serious decision, that you do not allow self-interested propaganda to influence you.
Bankruptcy is not a moral decision. It is a financial decision. It is a legal decision.
At least as legal as the credit card application or contract that you signed with the size 5 fine print font that is now being used against you.
All of that said, it is true that bankruptcy is not the first option for most people. What are some concrete signs that you should at least speak with a Michigan bankruptcy lawyer about the bankruptcy process?
You Are Unemployed or Unsure Where Your Next Paycheck Is Coming From
Perhaps this first sign is something of a no-brainer, but it’s a good starting point in your analysis regardless.
If you are in debt and have no income due to job-loss or the cessation of Michigan unemployment benefits, the question of a bankruptcy is likely one worth asking.
Collection Letters and Phone-Calls Are Driving You Crazy
Once you are 30 or more days late on a credit card or other debt payment, you can be assured that the phone-calls will begin. Letters will follow.
The interruptions will not respect your working day, your family-time, the dinner-hour, or any other polite nicety, regardless of what the Fair Debt Collections Practices Act requires.
Letters arriving in your mailbox will be formatted to appear to have originated with the IRS. They will threaten you with legal action. Late-night calls from states in which both parties must consent to recording the conversation will threaten you unlawfully with jail-time.
In short, the calls will drive you insane, and they will continue to do so until you pay, they sue you—or you file for bankruptcy.
You Are Being Sued for Collections
If you receive a mailing, a door-notice, or personal service from a process server that a lawsuit has been filed and you cannot immediately pay the debt, you should immediately seek legal counsel. Ignoring service of process will not stop the lawsuit from proceeding.
Perhaps you have legitimate legal defenses, in which case your attorney may advise that you defend the lawsuit on its merits.
Otherwise, if you do owe the debt, a bankruptcy may be worth considering.
If the lawsuit concludes with a judgment in favor of the creditor, the creditor will be able to garnish your paychecks, your bank account, file a judgment lien against your real or personal property, seize your property, or garnish your Michigan state tax refund.
A bankruptcy will stop all of these things from happening.
Your Vehicle is Threatened with Repossession
In Detroit in particular, you need a car to get by.
Whether by way of a judgment execution property seizure (see above) or a repossession due to your failure to make monthly car loan installment payments, the loss of a vehicle can be a natural outcome of job-loss, loss of income, or inadequate income.
When a vehicle is repossessed with a loan balance remaining on the contract or lease, you will lose the use of the vehicle—but you will also, after it is auctioned off by the repossessing creditor, incur what is known as a “deficiency debt.”
That is, if you owe $5,000 on the car note when it is repossessed and it is then auctioned off for $3,000, you will be liable for the payment of the remaining $2,000 balance.
More phone-calls. More letters. Possibly another lawsuit, in other words.
The seizure or repossession can be stopped with a bankruptcy filing. A Chapter 13 bankruptcy, in particular, will allow you to bring the deficient payments current.
Either a Chapter 7 or Chapter 13 bankruptcy will fully discharge a deficiency debt.
Your Home Is in Danger of Foreclosure
If you receive a letter from your mortgage servicer warning of imminent foreclosure due to missed mortgage payments, you should seek the counsel of a bankruptcy attorney immediately if you do not have the ability to bring your payments current.
If the letter has come from a foreclosure attorney working for your mortgage servicer, you have very little time to waste in doing so.
Once you are 90 days delinquent in your mortgage payments, it is likely that a sheriff’s sale of your property will be scheduled by your mortgage holder.
As with a delinquent car loan, a Chapter 13 bankruptcy will stop any foreclosure sale and allow you to bring your mortgage payments current over as many 60 months.
When your home has been auctioned off, it is too late to save it with a Chapter 13. However, any deficiency balance can be discharged in either form of bankruptcy.
The IRS or Michigan Department of Treasury is Levying Your Paycheck or Property
If your only debt is a tax debt, it is possible that you will want to explore other options prior to the filing of a bankruptcy. For example, an Offer in Compromise negotiation with the IRS can result in a settlement of a tax debt at very favorable terms, when successful.
However, if all other efforts fail, or if a tax liability is just one of many or multiple debts being carried, a bankruptcy is worth exploring.
It is a myth that tax debt is not dischargeable in bankruptcy. However, a tax debt is dischargeable in bankruptcy under very limited circumstances.
A good bankruptcy lawyer will be able to analyze the possible dischargeability of your particular tax debt, once retained.
Even when a tax debt is not dischargeable, it can be repaid as a priority debt at 0% interest in a Chapter 13 bankruptcy, ahead of any unsecured credit card, medical, or other such debt.
You’re Considering Liquidating a Retirement Account to Pay Debt
If bankruptcy is not the first solution to consider, it is certainly not the last. If you’re considering filing for bankruptcy after already having cashed out a 401(k) or IRA or other tax-qualified retirement account to pay debt, you’ve possibly considered bankruptcy too late.
When Congress enacted The US Bankruptcy Code, it did so with the intent of protecting your retirement savings.
While many personal assets are subject to liquidation in a Chapter 7 bankruptcy, a tax-qualified retirement account is not one of them.
A Chapter 7 or Chapter 13 will allow you to obtain relief from debt while maintaining your retirement balances.
That said, in order to protect your retirement accounts in bankruptcy, it must be properly exempted. An experienced bankruptcy attorney is required to ensure that this occurs.
Further, some “retirement accounts” are not tax-qualified and are some variant of annuity. These cannot be exempted in bankruptcy. The opinion and analysis of a bankruptcy attorney prior to the filing of the bankruptcy is even more important when this is a possibility.
You Are Reading this Blog Post
Finally, if you are reading this, the odds are good that you are seeking out reinforcement of what you already know: that bankruptcy is something you want to know more about, even if you don’t feel 100% sure that you have decided to proceed.
And that is the correct way to look at the decision-making process. Bankruptcy is something you need to know more about, even if you aren’t sure that you want to do it.
An initial consultation appointment with a Michigan bankruptcy attorney will tell you what you need to know about the process, your choice of Chapter 7 vs. Chapter 13, the costs involved, and the effect of bankruptcy upon your credit and borrowing ability afterward.
Attorney Walter Metzen is a Board-Certified Bankruptcy Expert who has been assisting Detroit-area clients successfully file Chapter 7 and Chapter 13 bankruptcy for over 25 years.
If you are considering filing for bankruptcy, contact us now to schedule your free, initial consultation appointment.