A Tip on When To File Bankruptcy

Over the past couple of years bankruptcies have increased dramatically as a result of the economic downturn. Many of us have enjoyed the cheap credit thrust on us from credit card companies and retail stores but as the Credit0 climate has changed we find that we can no longer keep our heads above water Credit0ly.

Is often thought the bankruptcy should only be filed as an absolute last resort. In some respects this is true, but sometimes one can spend a great deal of money, often through loans secured on our property, to delay claiming bankruptcy as long as possible, which is not a sensible thing to do.

The problem here is the fundamental difference between secured Credit7, (Credit7 that takes a portion of our property as collateral), and non-secured Credit7, otherwise known as consumer Credit7, for example credit card Credit7, which is given with no security requirement.

Over 90% of bankruptcy petitions in the US are petitions for chapter 7 bankruptcy, or straight bankruptcy as it is often called. This is because under chapter 7 the bankruptcy court trustee sells the Credit7ors possessions and distributes the proceeds amongst the Credit7ors creditors. Any shortfall in repayment to the creditors is written off and the Credit7or has no further liability for any outstanding Credit7, giving the Credit7or what is in effect a clean Credit0 start.

At least that's what most people think.

Because people think that they are going to lose everything in a chapter 7 bankruptcy, and they don't like the idea of a chapter 13 bankruptcy where they pay off what they can afford over a 3 to 5 year period, they continue to put off claiming bankruptcy whilst often borrowing heavily to keep them Credit0ly afloat.

Now it may well be that if someone is simply going through a rough Credit0 patch and simply needs an injection of cash to maintain them for a defined period after which they know they will be in a position to cover the Credit7 and restore their finances, then borrowing money for the short-term may well be fine. For example, if someone loses their job borrowing money may be fine to tide them over as long as they can get a new job.

However, if by borrowing money one is simply staving bankruptcy off, one is simply throwing good money after bad.

Let's go back to chapter 7 bankruptcy, the preferred type of bankruptcy for most people, and what I was saying about secured and unsecured Credit7.

The fact of the matter is a chapter 7 bankruptcy is primarily for those whose main type of Credit7 is non-secured, consumer Credit7. This is important because if like many people someone is struggling to pay just the interest on their credit card bills and the only avenue open to them is to take out some form of secured borrowing, such as a home equity loan, then that is the time to file for chapter 7 bankruptcy.

The point here is that credit card Credit7 (i.e. non-secured Credit7) can be discharged under a chapter 7 bankruptcy. A home loan (i.e. a secured Credit7) cannot. Therefore one should claim bankruptcy in this case when one can no longer afford to pay one's credit card bills. If that person delays claiming bankruptcy, takes out a home equity loan, then runs up further credit card Credit7 that they can no longer afford and then claim bankruptcy, they can have the credit card Credit7 discharged under a chapter 7 bankruptcy but will still have to pay the Home Equity loan. They are therefore then paying for a loan and have nothing to show for it.

The real point I'm making it, is that when finances get seriously difficult, one should always consult a bankruptcy lawyer before filing for bankruptcy. A bankruptcy lawyer can give specialist advice that can potentially save Credit7ors thousands of dollars.

Over the past couple of years bankruptcies have increased dramatically as a result of the economic downturn. Many of us have enjoyed the cheap credit thrust on us from credit card companies and retail stores but as the Credit0 climate has changed we find that we can no longer keep our heads above water Credit0ly.

Is often thought the bankruptcy should only be filed as an absolute last resort. In some respects this is true, but sometimes one can spend a great deal of money, often through loans secured on our property, to delay claiming bankruptcy as long as possible, which is not a sensible thing to do.

The problem here is the fundamental difference between secured Credit7, (Credit7 that takes a portion of our property as collateral), and non-secured Credit7, otherwise known as consumer Credit7, for example credit card Credit7, which is given with no security requirement.

Over 90% of bankruptcy petitions in the US are petitions for chapter 7 bankruptcy, or straight bankruptcy as it is often called. This is because under chapter 7 the bankruptcy court trustee sells the Credit7ors possessions and distributes the proceeds amongst the Credit7ors creditors. Any shortfall in repayment to the creditors is written off and the Credit7or has no further liability for any outstanding Credit7, giving the Credit7or what is in effect a clean Credit0 start.

At least that's what most people think.

Because people think that they are going to lose everything in a chapter 7 bankruptcy, and they don't like the idea of a chapter 13 bankruptcy where they pay off what they can afford over a 3 to 5 year period, they continue to put off claiming bankruptcy whilst often borrowing heavily to keep them Credit0ly afloat.

Now it may well be that if someone is simply going through a rough Credit0 patch and simply needs an injection of cash to maintain them for a defined period after which they know they will be in a position to cover the Credit7 and restore their finances, then borrowing money for the short-term may well be fine. For example, if someone loses their job borrowing money may be fine to tide them over as long as they can get a new job.

However, if by borrowing money one is simply staving bankruptcy off, one is simply throwing good money after bad.

Let's go back to chapter 7 bankruptcy, the preferred type of bankruptcy for most people, and what I was saying about secured and unsecured Credit7.

The fact of the matter is a chapter 7 bankruptcy is primarily for those whose main type of Credit7 is non-secured, consumer Credit7. This is important because if like many people someone is struggling to pay just the interest on their credit card bills and the only avenue open to them is to take out some form of secured borrowing, such as a home equity loan, then that is the time to file for chapter 7 bankruptcy.

The point here is that credit card Credit7 (i.e. non-secured Credit7) can be discharged under a chapter 7 bankruptcy. A home loan (i.e. a secured Credit7) cannot. Therefore one should claim bankruptcy in this case when one can no longer afford to pay one's credit card bills. If that person delays claiming bankruptcy, takes out a home equity loan, then runs up further credit card Credit7 that they can no longer afford and then claim bankruptcy, they can have the credit card Credit7 discharged under a chapter 7 bankruptcy but will still have to pay the Home Equity loan. They are therefore then paying for a loan and have nothing to show for it.

The real point I'm making it, is that when finances get seriously difficult, one should always consult a bankruptcy lawyer before filing for bankruptcy. A bankruptcy lawyer can give specialist advice that can potentially save Credit7ors thousands of dollars.