Misconceptions of Debtors
September 13th, 2010
The majority of people who have taken out a car loan, mortgage loan, credit card account or any other debt fully intend to repay it. This desire to repay outstanding debts is why so many debtors avoid bankruptcy even when they need it and there is no way for them to repay their debts. Many debtors who really should file bankruptcy search for ways to avoid it instead and end up worse off because of it. Below are a two bankruptcy avoidance tips that fail more debtors than they help:
1. Don’t file bankruptcy because you are judgment proof. If you are unemployed, have no assets and live with family or friends, you are judgment proof in that creditors cannot seize any assets because you don’t have any. But this is a foolish reason to avoid bankruptcy because unless you plan on remaining unemployed and without assets for the rest of your life, your creditors will eventually get their money. Even if you are currently unemployed creditors can and will file a lawsuit against you to get payment. Once they win a judgment, that judgment is valid for many years later and can be renewed. That means that once you get that job or buy that house, your creditors will swoop in with the power of the courts behind them. By filing bankruptcy you protect your future income and assets from creditors wielding judgments from you “judgment proof” days.
2. Don’t file bankruptcy because you can settle your debt for “pennies on the dollar.” This is another piece of advice that is useless for most debtors who really need to file bankruptcy. While some debtors may be willing to settle debts for less than you owe, many will not negotiate and are not required to accept less than you owe unless you’re in bankruptcy. But what you do when you try to settle old debt is alert the creditor that you have cash which could send them in a feeding frenzy, revving up lawsuits and other collections tactics against you. So if you try this method instead of bankruptcy, just know you are taking a risk. For most debtors who have multiple debts from multiple creditors, debt settlement is not a viable option for avoiding bankruptcy. On the other hand, if you just owe one debt that’s $5,000 and nothing else, maybe debt settlement could work.