There is an unwritten rule among bankruptcy attorneys that states filing either Chapter 13 or Chapter 7 bankruptcies should be a last resort option for consumers. The reasons for this should be obvious. Filing for bankruptcy will carry with it a number of negative consequences that will linger for years. For example, an individual will see his or her credit score drop significantly – perhaps by as much as 100 points. Future borrowing will be difficult at best, and borrowers can expect higher-than-average interest rates and less-than-desirable repayment terms.
Given the negative consequences of bankruptcy, you might think it is never a good option. But that is not necessarily true. There are times when attorneys do more than just agree to assist with a bankruptcy proceeding; there are times when we actually advise bankruptcy as being the best possible option.
When Critical Circumstances Exist
If there is a single phrase that we could use to describe when filing for bankruptcy makes sense, it would be ‘critical circumstances’. What are these critical circumstances? They are circumstances that, at the end of the day, leave the consumer with the choice of spending whatever little money is left for survival or diverting it to creditors hungry to get paid. Trust us when we say that critical circumstances exist more often than most people realize.
For purposes of illustration, here are just a few examples:
- Excessive Liabilities – Truth be known, there are times when liabilities so far exceed assets that there is no possible hope of repaying debts, even with the most stringent repayment plans. If such an imbalance exists, and an individual’s income is barely keeping pace with everyday living expenses such as rent and food, bankruptcy might be the only option for relieving the debt. It makes no sense to spend the next 40 years trying to fix a problem that cannot be fixed.
- Debilitating Illness – An injury or debilitating illness can make it impossible for a person to continue working. If such a circumstance is accompanied by an excessive debt load, disability insurance payments may not be enough to pay the bills and repay what is owed. Bankruptcy may be the only choice if there is no hope for the individual returning to work soon enough to pay off his or her debt.
- Failed Negotiations – There are some circumstances in which debtors have the means of repaying what they owe if creditors are willing to work with them. This is why we often advise clients to attempt to negotiate before filing bankruptcy. In cases where creditors are not willing to negotiate, there may be no other option other than bankruptcy.
- Chronic Unemployment – Since the start of the recession nearly ten years ago, we have seen a definite increase in the number of people chronically unemployed. Any condition of chronic unemployment can easily lead to overwhelming debt thanks to our culture of credit card spending and easily obtained secured loans. Some cases of chronic unemployment create critical circumstances for which bankruptcy is the only option.
We take bankruptcy very seriously here at Hayward. We know that a decision to declare bankruptcy is never an easy decision to make, and it is one that will affect your life for a long time to come. If you believe you have reached a point of critical circumstances for which bankruptcy is your only option, we invite you to contact us to arrange a consultation. Then we can answer your questions and, if need be, represent you in your proceedings.