Top 10 Reasons to Consider a Bankruptcy in Philadelphia

The Automatic Stay is the most powerful tool in all the law.  The Automatic Stay is immediately imputed upon a Chapter 7 or Chapter 13 Bankruptcy filing, and serves to stop all collection proceedings, including lawsuits, foreclosures and evictions against the bankruptcy filer. The automatic stay is imputed at the start of the bankruptcy proceeding, then the filer proceeds with debt forgiveness in a Chapter 7 Bankruptcy or repays a portion of their debt through a Chapter 13 Plan.

Because bankruptcy clears your negative credit history, your post-bankruptcy filing credit score now has the potential to increase.  Prior to filing a bankruptcy, our firm obtains a three-source credit report with an anticipated credit score one-year post filing.  Generally, one can expect an increase in their credit score between 50-100 points after one year of filing for bankruptcy.  However, the key to an increased credit score is staying away from any new unsecured debt, which is somewhat more difficult post-bankruptcy because all pre-existing debt is either eliminated or reduced monthly, and the bankruptcy filer will receive exorbitant offers from potential lenders.

It only makes sense to file a bankruptcy if it yields monthly financial savings. I speak daily with people who pay hundreds and thousands of dollars in minimum payments per month, and unfortunately do not see their debt decrease. Once debt is eliminated or reduced through bankruptcy, the propensity for savings exists monthly.  I often say that savings is the best insurance against incurring new debt in the future.  Not only will the ability to save help keep one out of debt, but it also helps open the door to purchasing a home, business or additional retirement contributions.

People that consider a bankruptcy are people that care and are trying to do their best to get ahead financially.  Those seeking bankruptcy are seeking financial relief and have usually endured financial distress for years.  The fear of losing one’s home, possessions or paycheck is daunting and due to such fear people pay their debts to the best of their abilities; often times the debts are paid ahead of their own needs.  This cycle leads to working long hours, working overtime, and sometimes eliminating necessities to make it through the month.  The cycle of working and paying debt without much or anything to show for it is emotionally draining and expensive.  Bankruptcy ends this cycle.  I am a lawyer, but I am also a “counselor” and the relief my client’s feel from a legal procedure is life changing and is why Bankruptcy is my chosen field of law.

Not everyone owns a home, but most people have a car, household possessions and monthly income that they rely on and need to protect.  In both Pennsylvania and New Jersey, the collection laws are creditor friendly and through collection lawsuits the taking of property by way of foreclosure, bank levies, garnishment or execution (taking) of personal property can proceed..  Whether the subject debt due and owing is derived from mortgage debt, personally guaranteed business debt, vehicle deficiency, credit cards, student loans or medical debt, bankruptcy can protect your assets from creditors.  Asset protection is as important as can be right now because the replacement costs of our goods are at an all-time high.  The filing of bankruptcy not only stops collection proceedings by virtue of the automatic stay, the filing of bankruptcy also serves to protect one’s assets from creditor collection.

While real estate prices are at an all-time high and interest rates are at 20-year high, loan modifications are more difficult than ever to obtain.  Further, the loan modifications as of late are not exactly favorable to the borrower when and if approved by the lender.   A Chapter 13 Bankruptcy is a tool commonly used to stop mortgage foreclosure proceedings; in Chapter 13 a borrower is then expected to pay their regular monthly mortgage and cure the mortgage delinquency over a period of five years at 0% interest.  Since the lender is not receiving interest on the mortgage arrears and the borrower’s home is protected, the borrower inside Chapter 13 Bankruptcy has leverage against the lender to seek a loan modification.  In New Jersey, there is even a program within Chapter 13 Bankruptcy to facilitate loan modification agreements between the lender and borrower.  In summary, Chapter 13 Bankruptcy opens the door for the mortgage borrower to obtain a mortgage modification they have been seeking.

A Chapter 7 or Chapter 13 Bankruptcy can be a viable method to discharge tax debt.  Outside of bankruptcy, tax debt has a statute of limitations for collectability of 10 years.  For Bankruptcy purposes, tax debts that are more than three years old, the subject year tax returns were filed more than two years ago and the tax debt has been assessed within 240 days are dischargeable in bankruptcy.  Tax debts that fall within this period are a priority debt and may be paid through a Chapter 13 Bankruptcy.  Further, tax debts which are secured by a tax lien on personal or real property can also be satisfied as part of a Chapter 13 Bankruptcy over a five-year period.

Both minimum monthly payments and payments in a debt consolidation are based on what you owe; bankruptcy, is based on what you can afford.  A Chapter 7 Bankruptcy is for a filer who in the eyes of the court does not have the requisite income based on their family size or assets to fund a meaningful distribution to their creditors.   Therefore a Chapter 7 filer is privy to a “fresh start” without any further payments to their creditors.  A Chapter 13 is what I refer to as the great compromise.  In Chapter 13 Bankruptcy a filer will pay based on not just what they owe, but what they can afford over a reduced three-to-five-year payment plan.  Further in Chapter 13 the interest rate on unsecured debts is reduced to 0%.  Although a monthly payment is required in a Chapter 13 Bankruptcy, the payment is at a reduced monthly amount and is capped at a three-to-five-year duration, so the filer can see a light at the end of the tunnel.

Often times, especially with less than favorable vehicle loan terms, a bankruptcy filer decides to surrender the vehicle in a Chapter 7 Bankruptcy matter.  Such a surrender avoids any deficiency action against the bankruptcy filer or any further financial responsibility with respect to the vehicle.  On the other hand, if a Chapter 7 filer is desirous of keeping their vehicle and continuing to pay the vehicle in a monthly fashion, they are welcome to do so.

One may file a Chapter 13 to reacquire a repossessed vehicle or to lower their monthly vehicle cost.  In Chapter 13 Bankruptcy one may cram down their vehicle, or pay based on the vehicle’s value and not the amount of the loan so long as the subject vehicle was purchased more than 910 days prior to the bankruptcy filing.  Further in Chapter 13 Bankruptcy one may include their vehicle in the payment plan and reduce the interest to prime plus 2% resulting in a monthly savings especially on high interest vehicle loans.

I often say that bankruptcy kills a lot of birds with one stone.  Although Bankruptcy is a word that people want to avoid, its results are often unparalleled.  In bankruptcy, Chapter 7 filers can rid themselves of years’ worth of debt and future monthly payments on such debt.  In Chapter 13, filers can save their homes while freeing up monthly income formerly allocated to credit cards and personal loans which were depriving their ability for savings.  Over the years and thousands of cases our firm has seen people’s financial lives restored.  Most often, there is no other area of law which will come close to the results we see in bankruptcy and that is why we practice this area of law on a daily basis.

If you have any questions about bankruptcy or would like to know if bankruptcy or another debt relief strategy is best for you, please call our office at 215-545-0008 in Pennsylvania or 856-890-9003 in New Jersey.  We look forward to helping you.