Hammond & Hammond, P.C.

Consumer Bankruptcy

Which is better: Filing bankruptcy or doing nothing?

No matter how well our economy seems to be doing, a portion of Americans continues to struggle with their debt, which forces individuals and families in some situations to choose between buying groceries and paying creditors. A difficult decision like this, coupled with the threat of calls from creditors, is enough for most to seek advice about debt relief and which option is best in specific situations.

Although it's true that bankruptcy does wreak havoc on your credit score and can prevent you from obtaining loans for a period of time, you should know that doing nothing is oftentimes considered far worse than filing bankruptcy. Here's why:

Wage garnishment. If you fall behind in payments on your debts and take no action or speak with your creditor about solutions, your creditors may file a lawsuit against you to collect on your debt. If the court rules in favor of your creditors, then a judgment will be filed against you, which allows a creditor to garnish your paychecks.

You may be able to stop wage garnishment before it occurs if you take the right legal actions and are eligible to do so. Otherwise, filing bankruptcy can put a stay on garnishments, giving you time to assess your situation and make informed decisions about what to do next.

Vehicle repossession. If you fail to make a payment on your loan for a vehicle, but do not negotiate with your lender for reduced payments or a different payment schedule, then your lender may decide to repossess your vehicle. They might even do so without giving you notice or sell your contract to a third party, explains the Consumer Trade Commission.

Depending on the type of bankruptcy you file and your loan status, bankruptcy may be able to help you keep your vehicle or, at the very least, buy you time to find another form of transportation.

Foreclosure. Falling behind in your mortgage payments can lead a bank or financial institution to send you a notice of intent to foreclose. If you do not respond to the notice by disputing the claim or curing the default, then your lender can move onto the next steps, which can eventually lead to foreclosure and the sale of your home.

Prior to a foreclosure sale, a petition for bankruptcy will halt foreclosure proceedings from advancing, potentially giving you time to come up with money to make your payments current or make other arrangements with your lender.

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