In times of personal and financial crisis, you may be considering filing bankruptcy. Stop there. Before you even begin to investigate this option, you need legal advice. However, meeting with a Chicago bankruptcy lawyer may not be your best course of action.
If you own a home, you need to meet with a foreclosure defense attorney first. They can investigate options of debt relief apart from filing for bankruptcy. You should seek their counsel first, as bankruptcy may not be in your best interest.
What Is Bankruptcy?
Bankruptcy is a legal process that may discharge a debtor from personal liability for certain specified types of debts. An attorney specializing in bankruptcy may be referred to as a general bankruptcy lawyer, a chapter 7 lawyer, or a chapter 13 lawyer.
Courts grant bankruptcy sparingly, as the ramifications of filing bankruptcy can be life-altering in a negative way. There are two primary types of bankruptcy.
Chapter 7 Bankruptcy
Under Chapter 7 bankruptcy, the court will require that a federal court trustee supervise the sale of any assets that aren’t exempt (cars, work-related tools, and basic household furnishings may be exempt). Money from the sale goes toward paying your creditors.
Chapter 13 Bankruptcy
With a Chapter 13 bankruptcy, the bankruptcy court and your Chicago bankruptcy attorney will negotiate a repayment plan. When you’ve completed the agreed repayment plan, your debt is discharged. There are consequences for failing to abide by the repayment plans.
Both types of bankruptcy negatively affect your credit. But the impact does not stop there. Beware. Bankruptcy can be an option that causes difficulty, rather than relieving it.
The Complexity of Filing for Bankruptcy
Please make no mistake about it. Seeking bankruptcy is not done via a simple online form or a quick visit with bank officials. Bankruptcy is a legal process. Attorneys, courts, and legal documents all come into play.
This is a process the government has deemed so important that the federal bankruptcy courts oversee it. For Chapter 7, for instance, you or your Chapter 7 lawyer will need to:
- Find out what documents the Illinois bankruptcy courts require of you;
- Collect all documents the Illinois bankruptcy courts require;
- Complete the court required bankruptcy forms;
- Go to court to file your forms;
- Pay a court filing fee; and
- Mail documents to a court-appointed trustee.
These are just some of the steps. There may be requirements that you take credit counseling and bankruptcy courses and attend court-mandated meetings regarding your debt.
A Chicago bankruptcy lawyer is best suited to handle this process on your behalf. However, you should first pursue options to avoid bankruptcy.
If you have a home, start by meeting with a foreclosure attorney. Don’t underestimate the complexity of filing for bankruptcy or the dangers of having a bankruptcy on your record.
Dangers of Bankruptcy
The allure of bankruptcy is debt relief. But it is crucial that you also consider the negatives of bankruptcy. Here are just a few of the challenges you will face if the court provides you with a bankruptcy discharge.
Bankruptcy Will Negatively Impact Your Credit for Years
Bankruptcy damages your credit. A Chapter 7 bankruptcy may remain on your credit record for ten years; a Chapter 13 bankruptcy is customarily on your record for seven.
Bankruptcies are considered negative information on your credit report and can affect how future lenders view you. Bankruptcy can hinder your ability to obtain unsecured credit, get a mortgage, and even get lines of credit (loans, credit cards, etc.).
Bankruptcy Will Not Discharge All Debts
Don’t ever assume that if a court approves your request for bankruptcy you will walk away debt-free. That is not the case. There are specific responsibilities the bankruptcy court will not remove, including debts regarding:
- Child support,
- Alimony,
- Student loans, and
- Taxes.
These are debts you will remain responsible for, regardless of the discharge of bankruptcy for other obligations.
Bankruptcy May Cause a Loss of Property
Bankruptcy proceedings can require you to turn over some of your belongings, so the courts can sell them to repay creditors. Bankruptcy can mean losing real estate, vehicles, jewelry, antique furnishings, and other types of possessions.
Co-Signers of Your Debt May Carry the Debt You Owed
Just because your portion of a debt is discharged, doesn’t mean the bankruptcy will discharge others with obligations on the debt. For example, if your partner, parent, or friend co-signed an auto loan for you, they could still be held responsible for at least some of that debt if you file for bankruptcy.
Collateral Damage
There may also be other collateral damage from a bankruptcy. Some employers view bankruptcy as a red flag for a potential employee, especially if the job at all relates to a financial field.
Bankruptcy may even impact potential relationships. We’ve seen this when a person fears the impact a bankruptcy may have on a marriage and a couple’s ability to purchase a home, for example.
Chicago Bankruptcy Lawyer vs. Chicago Foreclosure Defense Attorney
Often, bankruptcy is brought on by a homeowner’s inability to make their mortgage payments. People may fall so far behind on mortgage obligations that they feel bankruptcy is needed to discharge the debt.
On the other hand, in trying to juggle financial commitments, some homeowners begin failing to pay other bills to pay all or part of their mortgage payments. In the end, those actions become a vicious cycle, resulting in all accounts being past due and/or a home being in jeopardy of foreclosure.
If you are in this situation, you may not need a Chicago bankruptcy attorney. Instead, you need a Chicago foreclosure defense attorney. Mortgage payments are often the single most significant financial obligation a person has.
If you can manage your mortgage, other debts may fall into place. It is a foreclosure attorney that can address the issue at the heart of your troubles: your mortgage.
Avoiding Bankruptcy: The Homeowner Advantage
A foreclosure defense attorney will know the many safeguards in place to assist a homeowner in maintaining their home and getting into a situation that will allow them to manage their other debts as well. A foreclosure defense lawyer, not a bankruptcy lawyer in Chicago, can help you in these ways.
Request a Loan Modification
The attorney can try to negotiate a full change in mortgage payments, perhaps via a reduced interest rate or change in mortgage contract length. Lawyers are skilled negotiators who may be able to assist with loan modifications.
Foreclosure defense attorneys can work with your mortgage lender, HOA, and whatever other parties are involved in payments related to your home (or business property). They may be able to negotiate for you to make minimal good faith payments for the time being until you are back on your feet.
COVID-19 Mortgage Relief Through the CARES Act
Both the federal and Illinois State governments created laws to help homeowners as a result of the pandemic. The federal government created The Coronavirus Aid, Relief, and Economic Security Act (CARES).
At the heart of some of these laws is a requirement that mortgage lenders give certain homeowners forbearance (stop in payments for some time). Let an attorney figure out whether you qualify for relief and apply for it on your behalf.
Turn the House Over to the Lender
After meeting with your attorney and discussing all options, you may choose to avoid foreclosure and bankruptcy by turning your house over to the lender. Your lawyer will negotiate a time frame for you to leave the home and for the lender to take control of it.
Doing this can protect your credit and protect you from paying any additional amount to the lender. This action, usually called a deed in lieu of foreclosure, will free you from your mortgage, enabling you to meet your other financial obligations. As a result, you will not need to consider bankruptcy. The deed in lieu of foreclosure is contractual; do not attempt this unless working with an attorney.
Avoid Bankruptcy: Contact a Foreclosure Defense Lawyer
If you own a home and are experiencing financial hardship, reach out for assistance. Foreclosure defense encompasses a wide area, including helping people avoid filing bankruptcy by looking at other avenues of help for debt relief.
You should always have an attorney investigate ways of using your home to leverage money to assist in meeting your other financial needs. Your home may be your saving grace to avoid bankruptcy and all the negative ramifications it brings.
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