If you live in Massachusetts, and you are considering filing for bankruptcy, the most difficult choice that you face is whether or not to take the leap and file for bankruptcy in the first place. It is the focus of this article to inform you as to when bankruptcy may be the best option, and when it is likely not the best choice.
While recent years have stayed some of the very aggressive activities that collection agencies used to engage in, collection activity by collection agencies and creditors continues to be a big headache for debtors in Massachusetts. Collection agencies can contact delinquent borrowers by phone calls or letters, can seek a judgment to recover monies owed by a debtor, and can report delinquency in some cases to the credit bureaus. Not only does this activity by collection agencies negatively affect the credit score of a debtor, but in many cases, collection activity greatly impacts the debtor’s peace of mind.
Bankruptcy Benefits
Filing for bankruptcy in Massachusetts begins what is known as the automatic stay, a process allowed by federal law which prevents many of the activities previously mentioned from continuing. Once the automatic stay has been initiated a debt collector may not call or otherwise contact the debtor except through processes allowed under bankruptcy law. So, upon an accepted bankruptcy filing in Massachusetts, all collection activities must cease – no more phone calls, letters, etc., for most types of debt.
The relief to a debtor granted by the initiation of the automatic stay in bankruptcy, while of great psychological benefit to the debtor, is simply not enough reason to file for bankruptcy. The decision to file for bankruptcy is further guided by knowing which type of debt is likely to be relieved through the bankruptcy process.
If filing a chapter 7 bankruptcy in Massachusetts, credit card bills, medical bills, many types of civil judgments, overdue or past due rent owed, some types of personal loans, overdue utility bill debt, and some business and tax debt may be completely discharged. In chapter 7 bankruptcy, also known as liquidation bankruptcy, discharged debt is debt that is typically completely forgiven.
If filing a chapter 13 bankruptcy in Massachusetts, you will voluntarily enlist in a repayment plan to your creditors. Some debt may still be discharged in chapter 13 bankruptcy cases in certain circumstances. The positive trade-off for chapter 13 bankruptcy filers is that assets like a home and certain other personal property are usually preserved.
Warning Sings that Bankruptcy May be the Right Choice
So, what are the warning signs that your financial life is in deep trouble? Ask yourself these questions:
- Are you only making the minimum payments due on your credit cards?
- Are you receiving phone calls or letters from creditors or collection agencies?
- Are you using your credit cards to cover expenses like food, gas, clothing, or even rent?
- Have you looked into a debt consolidation plan recently?
- Do you owe a large amount of money to credit card companies, in loans, or otherwise?
- Is the total amount of debt you owe unclear to you?
- Does thinking about your debt cause you severe anxiety or worry?
If, after answering these questions, you find that you’ve answered two or more of these as “yes,” you likely have serious financial difficulties. While bankruptcy is certainly not the only option to deal with financial troubles, bankruptcy does offer substantial benefits depending upon your individual circumstances. Bankruptcy may be the right choice when the combination of debt load, current income levels and the ability to earn greater income do not result in a positive financial outlook.
Indications that Bankruptcy May not be Right for You
There is no crystal ball, and no one can demonstrate exactly how your financial situation will look after filing for bankruptcy. In my experience, filing for bankruptcy may not be a good option if you have a small amount of debt and relatively good income or earning power because, under these circumstances, you may be able to prevent bad credit or even turn around negative credit by redoubling efforts to repay your debts. The analysis as to the appropriateness of bankruptcy as a remedy becomes more complicated when an individual has many assets and steady income and a large amount of debt. Here, the choice to file bankruptcy requires a hard look at the outcomes that filing for bankruptcy provides weighted against other potential options.
Read my article, “Is Bankruptcy the Best Choice for a Massachusetts Resident?“
Life After Bankruptcy
It is common for people considering bankruptcy to wonder what life will be like after filing for bankruptcy. While everyone has different experiences, as a general rule bankruptcy is the beginning of a new and improved financial future. Your financial position can improve after filing because you are either starting with a clean slate and allowed to reconfigure your financial life (as in chapter 7) or you’re given the chance to keep important property (like a home) in return for agreeing to repay your creditors with an affordable repayment plan in chapter 13. Once the initial growing pains have subsided, you can rebuild your credit and reorganize your financial planning hopefully to avoid ever having to declare bankruptcy again.
DISCLAIMER:
The information provided in the pages and posts of this website are for general informational purposes only. The information presented on this site is not legal advice, and no attorney-client relationship is formed by the use of this site.
