Many people are struggling with their finances, often living paycheck to paycheck. When they have unexpected expenses such as a health problem or experience a decrease in income due to a job loss, they may not be able to make ends meet.
When a person is first starting to experience financial problems, he or she is usually reluctant to think of bankruptcy as a potential solution. Often, they will take many steps to avoid filing, and consider bankruptcy only as a worst-case scenario.
They may take several steps to try to overcome the problems they are having, including selling off assets to pay debts. Or, they may work with a debt relief organization that promises to help them negotiate away some of their debt.
Unfortunately, in many cases, these temporary solutions only make the problems worse. Debt relief companies often fail to deliver on their promises, leaving the individuals facing potential lawsuits for not paying their debts. Selling off property may allow for a short reprieve, but what happens when this property must be replaced?
When people file for Chapter 7 or Chapter 13 Bankruptcy, an automatic stay goes into effect. This means that all creditors must stop harassing the debtor. Lawsuits and wage garnishments will be stopped while the debtor goes through the bankruptcy process.
Additionally, depending upon the debtor's situation, he or she may be allowed to keep some assets. They may not have to sell property to pay debts, and instead can use this to help rebuild a new future. For families, this can mean staying in their homes while they regroup.
It is important to understand all of the options that are available when experiencing financial difficulties. Making an uneducated decision could lead to the problems becoming much more difficult to correct.
Source: Huffington Post "Bankruptcy Should Be the Last Resort, Many Say, But That's Just Not True" Steve Rhode, August 3, 2012.