Is it Better to File Bankruptcy or Just Not Pay

            When you are feeling overwhelmed by debt, it is common to ignore the situation and  wish it would just go away.  Unfortunately, the problems don’t go away and, in fact, just get worse.  You try ignoring the bills and collection letters, but they just keep coming.  Should you file bankruptcy or hope the creditors will eventually leave you alone?

            There are so many advantages to filing bankruptcy rather than ignoring the debt.  One of the most important things about bankruptcy is the “automatic stay.”  This is a legal way to stop creditors from harassing you about the debt you owe.  The automatic stay remains in effect during the entire time you are in your bankruptcy case. Is it better to file bankruptcy or just not pay debtsIf a creditor violates the automatic stay, you can sue that creditor in bankruptcy court.  The automatic stay is so powerful that its enforcement by the court continues after your bankruptcy case is finished and discharged.  Under the automatic stay, creditors cannot call you, write letters to you, sue you, or communicate with you in any way.    If you just stop paying your debts rather than file bankruptcy, creditors are free to harass you and continue to make your life miserable.

            A second advantage is that bankruptcy offers two options to handle your debt.  Chapter 7 is a bankruptcy case in which you can keep property while not having to pay your unsecured debts.  Unsecured creditors include credit cards, medical bills, and payday loans.  Chapter 7 bankruptcy is the legal way to not pay debt.  Chapter 13 is a plan to reorganize and repay debt. There are many options to repay debt, and your bankruptcy attorney will have review your income and debts to set up a payment plan for you.  Bankruptcy has options that you can afford to handle your debt.

            Another advantage is that bankruptcy stops all collection actions and lawsuits.  Creditors will file lawsuits against you if you default and do not pay your debts.  A lawsuit quickly turns into a judgment against you.  Creditors can now garnish your paycheck, garnish money from your bank accounts, and put liens on your house.  Bankruptcy immediately stops these actions — even if you already have a judgment.  Not filing bankruptcy can result in the loss of hundreds of dollars through garnishments and puts you even further behind financially.

            Bankruptcy can actually make your credit score increase.  When you ignore your debts, creditors continue to post negative information on your credit report every month.  Collection actions are also posted on your credit report.  Your credit score will continue to decline every month when you do not pay your debts or even if you do not pay on time. Bankruptcy stops creditors from posting negative information on your credit report.  It’s true that your credit score goes down when you file bankruptcy. However, your score starts going back up once you get your discharge because there is no longer any negative information being posted by creditors and your debt to income ration is improved when your unsecured debts are eliminated.  Even in the repayment plan of a Chapter 13, your credit score will still start going up.

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