PROGRAM SUCCESS – JANUARY 2009
PAGE 33
4 Top Reasons for Knowing When It’s Right
To File For Bankruptcy.
By Donald L. Dempsey, II, Esquire
Jacksonville, Florida
In my first article, How Bankruptcy Can Work For You, I discussed the
credit/debt crisis spreading across the country and how the filing of
bankruptcy is a feasible option for individuals seeking debt relief under
the new bankruptcy laws. In this article, I will explain my top 4 reasons
for knowing when it’s right to file for bankruptcy protection.
First, you make acquiring a fresh new start for you and your family a
primary goal for your life. If one cannot realistically satisfy his or her
basic living expenses, then the same rationale applies to your creditors.
Therefore, as time passes, you will not be able to care for your debtors,
who undoubtedly shall seek judgments against you for the debts that
remain unpaid. Moreover, judgments rarely go away, given Florida’s
20 year statute of limitations for enforcement of judgments. Subsequently, garnishments, liens and bank levies cannot be avoided and
bankruptcy becomes the only feasible means for retaining secured
assets (i.e. homestead and/or financed automobile) while seeking debt
relief for all unsecured debt (credit cards, medical expenses and other
unpaid bills).
Secondly, you save your house from foreclosure when the mortgage
Donald L. Dempsey, II, Esquire
company refuses to negotiate a settlement. Perspective clients often
complain that their mortgage companies refuse to negotiate a work out agreement
which they believe is in the best interest of all parties involved. However, they
assume their lenders will realize that it is better for the lender to adjust their mortgage payment schedule than to force the borrower into foreclosure. Although some
lenders will work out customized deals with mortgage borrowers, most lenders
will not deal with borrowers individual financial situations and modification
requests because most mortgages are no longer held by originating lenders.
According to a Wall Street Journal article written by economist Martin Feldstein,
most mortgages are “securitized and sold to investors worldwide. More significant,
mortgages are used to create complex, asset-backed securities that are central to
current credit-market problems. Investors no longer owns specific mortgages but
only have rights to certain conditional payment streams. So generally, it is no
longer possible to prevent foreclosure by negotiations between borrowers and
lenders.” In brief, filing for bankruptcy protection is the better alternative to losing your home when there is no one available to negotiate with.
Third, your credit can be improved over time by filing for bankruptcy protection.
A frequently quoted myth of bankruptcy centers upon its negative impact of credit
scores of ind ividuals. A bankruptcy stays on one’s credit for a period of 7 years
for a Chapter 13 personal reorganization bankruptcy from the date of filing, which
typically takes 3 to 5 years to complete, therefore it would completely disappear
2 to 4 years thereafter. However, if a Chapter 13 bankruptcy is dismissed, it will
still remain on a credit report for 7 years from the date of filing. As for a Chapter
7 liquidation bankruptcy, the bankruptcy stays on one’s credit for a period of 10
years. It is common knowledge that the filing of bankruptcy negatively impacts
one’s credit score but this negative effect weakens over time. For example, a two
year old bankruptcy means more to creditors than a six year old bankruptcy
because creditors are primarily interested in present financial circumstances. Consequently, if one’s debt-to-income ratio is much improved from years earlier, the
negative effect of a prior bankruptcy is minimized. Furthermore,
see BANKRUPTCY page 36