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Bankruptcy

Bankruptcy is governed by Federal law and it is your right to pursue it.  As a result of the recent recession, many people have seriously considered – or have filed bankruptcy.  When you get so far behind on your bills that it looks like you will never get caught up it can be overwhelming.  Creditors eventually call unceasingly to harass and hound you to make a payment.  Even though prohibited by fair debt collection laws, they may even begin to call you at work.  I have even known them to call your distant relatives!  Debt collectors can be unscrupulous and unrelenting.  Bankruptcy puts a legal halt to all collection activity and lawsuits.

Bankruptcy Can Offer Relief

However, there is an alternative to bankruptcy.  Generally, when you are at the place of filing bankruptcy, your credit score on your credit report has been greatly reduced due to the late payments and/or non-payment.  The negative information about unpaid creditors or late payments will remain for seven years.  Once you file bankruptcy, the bankruptcy will remain on your credit report for 10 years.  Although the credit bureaus must remove this information after the statutory time frame has lapsed, the history of your bankruptcy most likely will turn up elsewhere. 

With the recent economic disaster, bankruptcies have increased.  With bankruptcy so wide spread, many of the negative connotations to filing bankruptcy have eroded.  Before you file bankruptcy you need to be aware of another option – litigation.  When a bank or creditor goes unpaid they usually begin collection activities in-house.  Someone from the creditor’s collection department will call and write you trying to work out a payment plan.  If you are unable to pay – after a period of time – the account will be “charged off” and the debt will be sent and/or sold to a collection agency.  Collection agencies are professional debt collectors who work overtime to get you to pay.  They may be nice and friendly or dastardly and nasty to try to get you to send them a check or set up some sort of payment plan.   Oftentimes these agencies have bought the debt from a creditor for pennies on the dollar or they have an arrangement worked out where the original creditor will get a percentage of the money collected.  I have seen more of a willingness on the part of banks and creditors to try to work out some sort of repayment plan, even offering to waive late fees and penalties and to greatly reduce the overall amount due to collect some money from their debtor.  I know of a client who had a $70,000.00 dollar debt to a bank and the bank made an offer of settlement of $14,000.00.  Of course, if the client had $14,000.00 to spend she would not have been in the situation to have to settle in the first place.  The creditors realize that once you file bankruptcy, they may not collect any money from you at all.

I have also seen more of an unwillingness of creditors to pursue you in the courts.  Being a litigation attorney myself, I know how costly and time consuming the litigation process can be.  Creditors, and their attorneys, know that even if the creditor obtains an almost certain judgment – how will they collect if you have no assets? They may not be able to collect at all if you file bankruptcy.  You may be what we call in litigation “judgment proof.”  If you own a home in Texas (each state law varies) you have the Texas homestead exemption.  This includes your home and $30,000.00 in personal belongings (there is much more to learn about this valuable exemption).   A judgment creditor cannot force you to sell your home (if it is your homestead) to satisfy their judgment.  Your main concern with being sued by creditors is post judgment collection efforts aimed at your non-exempt assets.  They may go after bank accounts, extra vehicles, watercraft, or other non-exempt properties.  If you have not filed bankruptcy, often times you can work out a settlement agreement or a payment plan with the creditor of collection agency – post judgment.  The creditor can aggressively pursue your non-exempt assets after judgment, but again, this costs the creditor more time and money in legal proceedings.   One thing that a lawsuit defense to collections will buy you is time – time to reposition yourself to pay back the creditors, and time to determine if bankruptcy is really the best option.  If you do get a judgment against you by the creditor, you may be able to bankrupt the lawsuit judgment if there is no finding of fraud.  The lawyers pursuing you understand they could spend all the time and money collecting a judgment from you and then you file bankruptcy anyways.  They do a risk and cost benefit analysis every step of the way in litigation.

Litigation is expensive.  It costs to put up a defense to a lawsuit.  Many people don’t want to deal with a lawsuit.  However, understand it is an option.  Bankruptcy is also very expensive – not in terms of legal fees but in terms of your credit rating.  It is a decision you will live with for the next ten years.  Please give it careful consideration.

The above is not intended as legal advice specific to your situation but as a very general overview of options to bankruptcy.  You must discuss your circumstances with a lawyer personally to fully understand how the bankruptcy laws and collection laws apply to you. 

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