Every cloud has a silver lining. Most of our bankruptcy posts focus on the silver lining of bankruptcy. But this one focuses on the cloud. Unfortunately, to use another metaphor, some people make a mountain out of a molehill. Bankruptcy-phobia, irrational fear of filing bankruptcy, is a real thing.

To be certain, there are some downsides to filing bankruptcy. It is irresponsible and dishonest for an Athens, GA bankruptcy lawyer to ignore them. Good attorneys openly discuss the pros and cons of all legal options. Good attorneys also know how to minimize the cons, as outlined below.

Loss of Credit Cards

Most people file bankruptcy due to a disaster-related cash crunch. That disaster is usually divorce, job loss, economic downturn, or illness. These people often depend on their credit cards to pay bills and buy food.

All credit card companies are plugged into the internet, and most of them are plugged into the bankruptcy PACER (Public Access to Court Electronic Records) system. When debtors file bankruptcy, creditors immediately find out. Generally, creditors immediately turn off the debtor’s credit cards. Debtors usually have no idea this happened until they use the card.

To avoid this outcome, many Athens, GA bankruptcy lawyers reach out to credit card companies before the filing. Many credit card companies are willing to keep the account active if attorneys assure them a reaffirmation agreement is forthcoming. If the company refuses to negotiate, there are plenty of other banks that will.

Credit Score Adverse Impact

Most people see a 50 to 100-point drop when they file bankruptcy. Unless the debtor takes some proactive steps, this score usually doesn’t move up until the bankruptcy filing falls off the credit report. Even when that happens, the score might not improve much.

Some credit-rebuilding steps we recommend include obtaining a credit card to show responsible credit use. We also advise most clients to make thirteen payments a year instead of twelve on secured debts, like home mortgage payments.

Problems Obtaining Loans

As mentioned above, some lenders flatly refuse to work with people with bankruptcies on their credit records. Other lenders prefer to work with these individuals. Post-bankruptcy loans are high-risk loans. As a result, banks charge higher interest rates and make more money.

The Athens bankruptcy lawyers at Morgan & Morgan have professional relationships with certain banks who work with former bankruptcy debtors. So, when you need to borrow money, we point you in the right direction.

Lost Property

Sometimes, bankruptcy does not shield all assets from creditor seizure. That’s especially true with regard to “luxury” items, like boats. 

However, trustees (people who oversee bankruptcies for judges) do not always seize all nonexempt assets. Let’s stay with the boat example. In order to sell the boat, the trustee must seize it, store it, pay off the loan balance (if any), make any necessary repairs, market it, and locate a buyer. All those things cost money. Frequently, the cost is so high that a seizure would not be in the creditors’ best interests. Therefore, the seizure is illegal.

Stigma

Admittedly, there is not much an Athens bankruptcy lawyer can do about this disadvantage of filing bankruptcy. Many people believe debtors who file bankruptcy are failures. However, in the immortal words of Taylor Swift, haters are gonna hate, and you just have to shake it off.

Tax Refund Denial

This bankruptcy disadvantage varies in different jurisdictions. However, the law is relatively clear. Financial windfalls, including tax refunds, which happen while the bankruptcy is pending belong to the bankruptcy estate. So, unless these windfalls are exempt, they belong to the trustee.

However, the trustee generally does not have the power to intercept tax refunds. Instead, the trustee must usually file a motion for turnover. Typically, if the tax refund is larger than $1,000, the trustee proceeds with this action. Smaller refunds are, frankly, not worth the effort, in the view of many trustees.

Non-Dischargeable Debts

Most unsecured debts are dischargeable. “Unsecured debts” includes things like medical bills and credit cards. “Dischargeable” means the judge eliminates the debtor’s legal obligation to repay that debt. The collateral consequences of that debt, if any, remain.

Tax liens are a good example. Income tax is an unsecured debt. However, if the IRS filed a lien, that lien remains in effect, even if the judge discharges the debt.

On a related note, past-due income tax is only dischargeable in some situations. The same thing applies to student loans and some other unsecured obligations. An Athens bankruptcy lawyer must file a legal motion in these cases. Generally, the debtor’s attorney and trustee settle these matters out of court. That settlement usually includes a partial discharge.

Conclusion

While filing bankruptcy can bring you relief from debts and the daunting collection calls, going down this road is not always flowers and sunshine. Your Athens, GA bankruptcy lawyer will be the most reliable person to turn to if you decide to file bankruptcy. Only an experienced attorney will be able to explain the pros and cons, as well as discuss all your legal options while minimizing the negative consequences of your decision as mentioned above. 

Get in Touch with a Skilled Athens, GA Bankruptcy Attorney Today

If you are considering filing bankruptcy, you probably know that it is a legal declaration of your inability to pay your outstanding debts. A lot of people file bankruptcy to find relief from overwhelming debt. There are, however, some significant downsides to filing bankruptcy. But, don’t worry. An experienced bankruptcy lawyer in Athens knows how to minimize or eliminate them. So, contact Morgan & Morgan, Attorneys at Law P.C. at (706) 843-2905 for a free consultation. We routinely handle matters in Clarke County and nearby jurisdictions.