Get the Facts and Learn From Three Real-Life Scenarios to Help You Find the Right Solution
If you’re struggling with debt, it’s highly likely that you’ve been searching for solutions online. During your search, you may have gotten curious about bankruptcy. However, you’re not sure if this is right for you. You never thought that you’d be in a situation where you had to consider this solution, and, at this point, you’re almost afraid to make a move.
So how do you know if bankruptcy is for you? What are the benefits? Is the so-called “stigma” about bankruptcy real? Let’s find out the truth about what the power of bankruptcy can do for you with the help of a trusted bankruptcy attorney near you.
Clearing Up What’s True and What’s False About Bankruptcy
You need a final answer on what bankruptcy is and what it isn’t. That way, you can seek out a bankruptcy attorney when necessary or inquire about whether they can help you with another debt relief solution.
Read this list of frequently asked questions to get the facts about bankruptcy:
-
Q: Can bankruptcy get rid of debt?
A: Yes, this is true. Both Chapter 7 and Chapter 13 bankruptcy are designed to end with a Discharge Order, which is a court order that you don’t have to pay most types of unsecured debt, including credit cards and medical bills.
-
Q: Will bankruptcy ruin my credit score and my eligibility for a mortgage?
A: No. This is false. Although bankruptcy will temporarily limit your credit score and lending options, your credit will absolutely recover quickly. It is possible to have a 700+ credit score and mortgage eligibility within two years of filing bankruptcy. For well-meaning people struggling with bad credit or untenable debt-to-income ratios, bankruptcy can be the fastest way to rehabilitate your credit.
-
Q: Does bankruptcy mean I am a failure or “bad?”
A: No. This is false. Unfortunately, bankruptcy has been unfairly stigmatized in the media and during the course of history in this country. There are many things that people consider “a failure.” However, if they actually saw life through another person’s point of view and understood their circumstances, they would see it differently. That’s where the stigma comes from: judgmental people. And, of course, we all know that judgmental people see things from a holier-than-thou perspective that distorts their opinion. Bankruptcy exists for those who need debt relief, so they can build their lives back up and find financial stability. It’s your right to a fresh start. Instead, feel proud that you’re taking action to address your debt. This will create a brighter future for yourself and your family.
-
Q: Is bankruptcy actually a cost-effective solution?
A: Yes. This is true. While bankruptcy is not a one-size fits all solution, it is far and away the most cost-effective debt relief option for many people. The right bankruptcy attorney can help you determine the cost of bankruptcy and your other debt relief options. If bankruptcy is right for you, a debt relief attorney can prepare your bankruptcy paperwork and represent you through the process for minimal fees, and, in some cases, can help you file a fee waiver, if you qualify.
Bankruptcy’s benefits far outweigh the misconceptions. Although it is true that you will need to build back your credit score and eligibility for credit, such as a mortgage, view this as part of the process of keeping your financial life on track. After your debt has been discharged, you can set a personal goal of growing your credit score and eligibility for future loans as a reward for your good work.
These Scenarios Will Help You Understand If Bankruptcy Is Right For You
Now that you understand how bankruptcy can help, consider the different situations that people find themselves in and learn whether bankruptcy is the best solution. Look for your own story in one of these scenarios to find out if a bankruptcy attorney near you could potentially help you. Names have been changed to protect privacy.
Scenario #1 When Bankruptcy Is the Best Option For Personal Debt
Jon earns less than the median household income in Colorado. He lives paycheck to paycheck and has very little in savings. He cannot afford to pay medical bills, and they’ve been piling up. If he were to make even the minimum payment on his credit card bills, he wouldn’t be able to afford rent or groceries. Jon wants to try to pay back at least something – a little here and there – but it doesn’t feel like it would make a difference, now that the late penalty fees have gotten out of control.
In this case, Chapter 7 bankruptcy would be an excellent solution for Jon. He can’t settle his debt with his creditors because he doesn’t have enough income or assets to save the amount necessary to settle his debt. He also shouldn’t consider debt consolidation because it wouldn’t get rid of his debt. His debt would simply be consolidated, and he’d still have to pay a minimum payment he can’t afford.
After working with a bankruptcy lawyer, Jon is now on the path to a better credit score, a mortgage, and a better future.
Scenario #2: Divorce and Bankruptcy
Patrice and Heidi are getting a divorce, in part because of their financial troubles. They are struggling to pay off the many credit cards they used to improve their quality of life. Their combined income in their two-person household is below the median income threshold for Chapter 7 bankruptcy. They both know that they need to do something about their debt, as their bills are going to continue to haunt them, even after they’ve split up.
They’ve learned from a free consultation with a bankruptcy lawyer that each of them is responsible for the other person’s debt after their divorce, if it was a joint debt to begin with. If one of them is unable to pay, the other one will have to take it on, even if they decided in court who would be responsible for it.
Patrice and Heidi are excellent candidates for bankruptcy. They can resolve their debt jointly through bankruptcy. It is important for them to openly discuss potential conflicts of interest by filing a joint bankruptcy while planning to subsequently divorce. In particular, they must get along well enough to work together in bankruptcy. Their attorney cannot keep secrets from each of them and cannot represent them both if they start fighting. While some people should file separately from their ex-spouse, filing together can be an efficient way to minimize the cost of their bankruptcy and their divorce (since they won’t have to fight over who will pay what debt).
Scenario #3 Taxes and Bankruptcy
Bernadette is in trouble with her taxes. She was able to pay her taxes for the last couple of years, 2023 and 2024. However, she was previously self-employed and, while she filed all of her returns on time, she owes nearly $50,000 of income taxes for 2018, 2019 and 2020. Her income is now above median, but she has a kid in college and cannot afford to pay her back taxes. She doesn’t have much other debt and doesn’t own her home. And this situation is getting urgent because the IRS has just sent her a Notice of Intent to Levy.
Bernadette can get out of her tax debt in Chapter 7 bankruptcy. When Bernadette visited a bankruptcy attorney in 2024, the lawyer asked:
- If her tax debt is from returns which were due to be filed at least three years old or longer. In particular, the attorney wanted to know if she filed an extension for her 2020 return, which would have pushed the due date for that year’s returns to October 2021 and make that year non-dischargeable unless she waited to file bankruptcy to the latter half of October 2024.
- If her tax debt is from returns filed at least two years ago or longer. She filed all of her returns on time, and this wasn’t a problem.
- Whether she has ever committed a tax-related crime, such as fraud or evasion.
- Whether she has ever had a return filed for her by the IRS (a substitute for return, known as an SFR). Because she filed her returns on time, this wasn’t a problem.
- Whether any of the tax years for which she owes were re-assessed. The attorney explained to Bernadette that tax returns are self-assessing, meaning she owes what the return says. An IRS re-assessment is not adding interest and penalties to the liability. Rather, it would entail the IRS changing the numbers on the return (e.g., by adding income she didn’t include, or denying deductions the IRS deems as inappropriate).
Because Bernadette can answer that her debt is older than three years, she filed those returns on time, she has not committed a tax-related crime, she hasn’t had an SFR filed on her behalf, and she hasn’t been re-assessed, she can benefit from bankruptcy.
Additionally, her tax debt actually enables her to file Chapter 7 bankruptcy despite the fact her income is well above the median income for her household size. This is because taxes are considered non-consumer debt and, if the majority of your debt is non-consumer debt, you are eligible for Chapter 7 bankruptcy regardless of your income. Bernadette doesn’t have a mortgage, which would certainly have made the majority of her debt consumer debt, and her combined credit card, car loan, and medical bills are less than her total tax debt. Bernadette will finally be free of her old tax debt with the help of a bankruptcy lawyer.
Finding a Bankruptcy Attorney Who Knows the Law
If you find yourself relating to any of the above scenarios, either in part or in full, bankruptcy may help you find financial relief. Your next step is to find a bankruptcy attorney near you who understands the power of bankruptcy and can deliver a strategy that works.
An excellent bankruptcy attorney is also likely to understand your unique situation, which may fall outside the scope of the scenarios above. Rest assured that for nearly every financial difficulty, a highly trusted lawyer who helps clients with debt solutions knows a way to get you the help you deserve.
Continue exploring additional scenarios that can be resolved with an expert debt relief lawyer: