What if You Need to File Bankruptcy But are Morally Opposed to Bankruptcy?

No one wants to file for bankruptcy.  And despite what some may think, bankruptcy is almost always a last resort for people.  Truth be known most people that file bankruptcy should have filed years before they actually did – often to their detriment.  People want to pay their bills, but sometimes, they just can’t.

Recently I met with a couple that needed to file for bankruptcy.  They had over $100,000 in unsecured debt from a failed business.  They came to me seeking information on alternatives to bankruptcy.  I was happy to provide them with alternatives but I told them that bankruptcy was not only their best option but most realistic one for dealing with their debt problem.  They said that they were morally opposed to filing for bankruptcy and wanted to figure out a way to get things paid.

I respect that and would never try and pressure someone into filing bankruptcy.  But I do paint a picture of what your life will be like if you can’t pay your debts and won’t file for bankruptcy.

Never-ending Collections

Some believe that they will just batten down the hatches and wait out the statute of limitations and then move on with life.  While it is true that almost all debt has a statute of limitations, it is important to understand what that actually means.  In Arizona debts that are based upon a contract have a statute of limitations of 6 years.  This means that from the time your account is defaulted the creditor has six years to sue you or they will be barred from doing so.

What this doesn’t mean is that they can’t still hassle you for payment well beyond the six years.  They can’t sue you, but there is nothing that says they can’t call you and ask you to make a payment.

Garnishment

If you can’t pay your bills it is likely that eventually your creditors will sue you.  Once they get a judgment against you they will be able to make your life miserable.  The judgment will allow them to garnish your wages, garnish your bank account, and take non-exempt property.

Continuing Damage to Your Credit Score

If you are not making payments on your credit card debt your credit score is likely getting hit each month.  Month after month you get hit and your score keeps going down.  While it is true that derogatory information on your credit report is supposed to fall off after seven (7) years, more and more I am seeing old debts that have been sold to another company remain there for much longer.  It shouldn’t be that way, but unless you contest the information on your credit report they often will keep showing up well beyond the seven years.

So What Do You Do?

So what can be done?  You feel obligated to pay your creditors, but can’t.  First, it is important to understand that even if you file for bankruptcy you can voluntarily pay any creditor you choose after your bankruptcy case is over.  Bankruptcy takes away the legal right most of your creditors have to collect on the debt, but it doesn’t mean you can make arrangements with them after the fact to repay.  I often don’t recommend this route, but it is possible.  You could file the bankruptcy to bring some semblance of order to your financial life and then repay if you choose.

You could also file a chapter 13 bankruptcy.  Chapter 13 is generally a five (5) year plan where you can repay at least a portion of your debts.  This allows you pay what you can (which is what you have been trying to do for years!) and then at the end what ever you can’t repay will be eliminated.  While you are making these payments the bankruptcy court will not allow your creditors to harass you.

The Choice is Yours

In the end, the choice is yours.  But here is my take on it – there is a big difference between a person racking up a bunch of credit card debt on frivolous things and having no intent to pay the debts owed, and a person who incurs debts while trying to start a business or keep food on the table and fully has every intention of paying back the debt.

Sometimes you just can’t – and when that happens the law can provide relief through bankruptcy.