If you take one hundred (100) lawyers, put them into a room and ask them the top 10 reasons for filing bankruptcy, their top ten reasons would be too numerous to list . . . at the Levine Law Office, after 33 years of representing debtors, we believe what follows to be our top ten reasons . . .
The #1 reason for choosing to file any bankruptcy – Chapter 7, Chapter 13 or Chapter 11 – is to obtain the automatic stay! If you file for bankruptcy relief under any chapter, absent a few prominent exceptions, the filing automatically and, of greater significance, immediately halts all ongoing legal and collection actions against the debtor, including telephone calls from collectors, lawsuits, foreclosures and wage garnishments (N.B. THERE ARE EXCEPTIONS — so please consult with an attorney).
The #2 reason for choosing to file for bankruptcy relief is the fresh start it affords a debtor. Again, all of a debtor’s dischargeable debts are discharged (N.B. THERE ARE EXCEPTIONS — so please consult with an attorney). A debtor is often surprised to discover that post-discharge their financial life has not come to a complete end.
The #3 reason for choosing to file for bankruptcy is that in Massachusetts, even if you seek and obtain a discharge of your debt and a fresh start under Chapter 7, the laws allow you to retain certain essential property because it is exempt and protected from the claims of your creditors. This usually includes your home, car, household goods and retirement savings. You may also choose to obtain protection from creditors and be able to retain essential and “non-exempt” property by filing a Chapter 13 or Chapter 11. This allows an individual the option of keeping property which might otherwise be sold or liquidated in a Chapter 7 proceeding by proposing a repayment plan which provides for the payment to creditors in an amount which is not less than the creditors would have received in a Chapter 7 had that non-exempt asset been liquidated.
The #4 reason for choosing to file for bankruptcy is that, in certain circumstances, you may be able to “cram down” certain debts through a Chapter 13 or Chapter 11.
The #5 reason for choosing to file for bankruptcy is that judicial liens can often be avoided and real estate (property) can be sold free and clear of liens and encumbrances while preserving the homestead protections.
The #6 reason for choosing to file for bankruptcy reorganization under Chapter 13 or Chapter 11 is that some claims may be treated differently than others. You may be able to obtain a discharge of most kinds of unsecured debt while repaying amounts which cannot be discharged, such as most taxes or domestic support obligations, through a Chapter 13 or Chapter 11 plan. The payment of “priority claims” can be restructured in a Chapter 13 or a Chapter 11 and can be paid over a period of up to five years.
The #7 reason for choosing to file a bankruptcy under the provisions of Chapter 13 or Chapter 11 is the ability to continue operating your business (including as a sole proprietor, a corporation or Limited Liability Company [“LLC”]) while restructuring your debt. A successful bankruptcy restructuring can allow a company to reorganize, remain in business through proposing an extended repayment plan to creditors and getting a second chance at succeeding.
The #8 reason for choosing to file a bankruptcy is the existence of the “co-debtor stay” which in most instances is available in a Chapter 13 with regard to certain consumer debts. The co-debtor stay may protect your co-signers from having to file bankruptcy themselves or from having to pay the co-signed obligations while your reorganize. Obligations which are affected by the co-debtor stay can be paid in Chapter 13 by proposing a repayment plan.
The #9 reason for choosing to file for bankruptcy is that if you are able to file a Chapter 7, you may be able to exempt all of your assets and not have to pay anything back to general unsecured creditors.
The #10 reason for choosing to file for bankruptcy is that future (re)financing of a home will be possible. You may not be able to obtain the rate afforded a bank’s highest credit score applicants, but obtaining a mortgage at a higher interest rate is certainly a possibility. The filing of a bankruptcy will not be the end of your financial existence.