“Bankruptcy” is a big word that is scary to many people, and one that is thought of by many as either a last resort to be dreaded and avoided, or as a viable option when debt becomes too unwieldy to handle. It’s a word that carries a lot of connotations, but it may just be the best choice for you if your financial situation has you immovably trapped under crushing debt that you’re not going to be able to pay back.
Bankruptcy shouldn’t be seen as an option to get out of debt that you could pay off if you worked hard enough for long enough. But it can be a way to get a handle on your financial future. Paying off debt is preferable, but in some cases bankruptcy can be a good investment for your future.
What is bankruptcy?
Bankruptcy is a way for you to start with a clean slate when debt becomes too crushing and you have little to no hope of paying it off. There are essentially two types of bankruptcy. One is called a Chapter 7 bankruptcy or “liquidation” — a trustee can sell your property/assets in order to pay back the debts you owe. Some property is exempt from this, however it depends upon the state in which you are filing.
A Chapter 13 bankruptcy is a reorganization of debt and is typically used in situations where the debtor makes a large income. This sets your debt up on a 3-5 year payment plan.
It is important to note that there are certain kinds of debt that are NOT bankruptable — this includes student loan debt, income taxes, and child support. This is definitely a consideration and you should think about what kind of debt you have and whether or not they are bankruptable before making this decision.
A Good Financial Investment?
That said, depending on your financial situation, bankruptcy may be a good financial investment for you. Consider these reasons why that might be the case…
1. Bankruptcy erases MOST debt. Bankruptcy erases most debt (but not all, as previously mentioned). If you have debt that will be erased by bankruptcy, it may be worth getting a clean slate to start over. You have to approach this, though, with the attitude that you’ll make different and better financial decisions this second time around, because no one wants to go bankrupt twice.
2. Many times, bankruptcy is preferable than just making minimum payments on all your debts for years and years. Depending on how much and what kind of debt you have, the minimum payments alone may be breaking you every single month. And chances are they’re barely covering the interest. At that rate, you’ll take decades to pay off debt — if you ever make any progress at all. Instead, if you go bankrupt and rebound, you could save that money for other things like retirement or emergency funds.
3. Living under crushing debt creates stress. Avoid it if possible. Being in deep debt causes major stress on you, your marriage, and your family. Your husband/wife and children will bear the stress of being in debt just as you will. Bankruptcy helps you set aside hopelessness and create a plan for getting back on your feet.
4. Once you’ve moved past that stress, you’ll be able to make wiser financial decisions in the future. Being stressed about money can make you go a little crazy. Once you’ve worked through your bankruptcy, you’ll be free of that crushing debt and stress, which will make it easier to make wise financial decisions that will change your financial situation for the better.
5. You’ll finally be able to save money. Once you move past your bankruptcy, you’ll be free of crushing debt that will enable you do so some serious saving for emergencies and college funds for your kids.
6. Since you’ll be able to save, you’ll give yourself peace of mind for the future by being able to finally put money into a retirement account. You’ll be able to use your bankruptcy as a springboard for good future financial decisions and will be able to start putting money into a solid retirement account — money that you would’ve been stuck giving to minimum payments each month.
7. Not doing anything will only make the problem worse. Sometimes when it comes to severe financial stress, you just have to make a radical decision that will get you started on the right path. Bankruptcy may help you get a fresh start to take the lessons learned to make better decisions in the future.
Though bankruptcy can be a scary term with long-term impacts, for some it is the best financial decision and one that can prove to be a good investment for the future. Weigh the pros and cons, and determine if bankruptcy may be a way for you to set yourself up for future financial success.
Written by John J Scura III, Esq. Partner, Scura, Wigfield, Heyer, Stevens & Cammarota, LLP
John has been Certified by The Supreme Court of New Jersey as a Civil Trial Attorney. Whether it is a personal injury case, bankruptcy case, litigation case or other type of matter, John wants his clients to participate in the decision making process toward solving their problem in the best way possible.
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