Explore Your Options Sooner Rather Than Later: You May Have More Than You Think
Many people who are in financial turmoil and seeking bankruptcy relief often, quite understandably, feel powerless and out of control. This comes from feeling like they have no options.
They think their creditors are going to come into their homes and take everything they own and leave them out on the street. However, what often is true is that they have numerous options.
One truth I’ve learned over 20 years of representing clients in bankruptcy: The longer you wait to explore your options, the less options you will have.
Will Bankruptcy Help You?
Deciding whether to file a bankruptcy case, or how to handle your particular financial problems is, like any decision, a matter of weighing the costs and benefits and then choosing the optimal solution. By understanding their options, my clients often feel relieved just knowing that they HAVE options and that the choice is theirs as to how to proceed.
One recent client, for example, expressed relief and gratitude when they learned that even though their income was too high to file a Chapter 7 case (to simply “wipe out” their debt), they could do a modest monthly repayment plan in a Chapter 13 bankruptcy case based on their disposable income and, in that case, repay about 25% of their debt and then be discharged from the rest.
As another example, a typical client has a home with two mortgages on it and no equity and $80,000 of credit card-type debt. They are being sued by a couple of the credit card companies and are concerned that they will soon obtain judgments and start to garnish their wages and put a lien against their home.
What options does this person have?
Obviously it depends on a lot of factors, but typically there are many:
- Negotiate with the creditors to reduce the balances and interest rates and come up with a workable payment plan;
- Take out a loan to pay off the credit card debt (if possible) after negotiating a lump sum payoff,
- File some chapter of bankruptcy; 4. Do nothing and see what happens.
There may of course be many more options in any given case, but I wanted to point out a few common ones. Which is best? That also depends on the specific facts of the parties involved, such as their income, expenses, assets, eligibility for bankruptcy (and which chapter), etc.
The point of this all is to educate yourself and take back the power. The worst thing anyone can do is sit around while the bills pile up, phones ring off the hook, lawsuit summonses are ignored, etc. That is a guaranteed way to reduce your options and yield a result such as unexpected seizure of assets (such as money in your bank account, or wage garnishment).
Find out the parameters of the different options you have given your present, and anticipated, financial situation by talking with a financial planner and/or a bankruptcy attorney.
Do you have a financial advisor or CPA?
One thing I am constantly astonished by is how many of my clients, including those operating self-employment businesses, do not even have an accountant (CPA).
As to the self-employed/business people I say: If you can’t afford an accountant, you can’t afford your business.
As to everyone else, having an accountant is a very important part of your financial planning. I’m not just talking about annually preparing your tax returns. I’m talking about analyzing your income and expenses and figuring out if you’re going in the right direction, are in deep trouble, or need to make changes.
This is not to say that one couldn’t figure this out on their own, but most people don’t, or simply aren’t good with numbers. It’s also a good idea to have an impartial third party take a look at things because they tend to make more pragmatic assessments.
To summarize, a lot of financial problems can be prevented or resolved by being proactive and learning about and understanding your options. It’s sort of like a person who is in the early stages of Cancer that could be treated but ignores it (for whatever myriad of reasons) until it gets to the point where there really isn’t any option other than death. Dramatic effect aside, it is important to explore your options as early as possible so you can choose the optimal path for your personal financial resolution.
Image courtesy of runran