By: Daniel Stone
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Why Bankruptcy Shouldn’t Be Your Last Resort
The internet is full of articles as to why bankruptcy should be a person’s last resort in dealing with their debt problems. While I am an advocate of looking at all your debt remedies, I see too many of my clients waiting too long to file bankruptcy and causing harm to themselves and their families by doing so. The following is a list of ways people can harm themselves by making bankruptcy their last resort instead of using bankruptcy at the beginning of their debt problems.
1. Rock bottom credit score. Many of my clients are so scared of filing for bankruptcy that they wait until their credit score is in the mid 400 range. While it is true filing for bankruptcy will lower your score 75-125 points, many of my clients take the double whammy of not paying on their debts for a year or two while hoping they will come into some money to pay the debt. A smarter move is to file the bankruptcy when you see the dark clouds coming while you have a good credit score. Though you will take a hit with the bankruptcy filing, it will be a one time hit. On a personal note, I filed a Chapter 7 bankruptcy for a friend of mine five years ago. After the bankruptcy was discharged, I asked him what is thoughts were of the bankruptcy process. His answer was that his only regret was that he should have filed it a year sooner when his credit was still in the good range.
2.Using retirement or equity in your house to pay debt. I have many clients who have attempted to stop the debt wave by using retirement funds or equity in their home that they have worked years to accumulate. Unfortunately these same clients find out that these funds only put a dent in the debt and later file for bankruptcy. If these clients would have made the decision earlier, they could have saved themselves thousands of dollars. Converting unsecured debt (credit card and medical debt) to secured debt (second mortgage) is not a good decision if you can find alternartives such as bankruptcy.
3. Emotional distress. Finally, many of these same clients put off filing bankruptcy and endure a year of two of collection calls that causes additional emotional distress. By filing bankruptcy, you put a complete halt to the creditor phone calls and harrasment and begin a fresh start.