A new normal: notes from a local bankruptcy attorney

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Due to the COVID-19 pandemic, people’s finances and even bankruptcy are topics weighing heavily on the minds and hearts of many Raleighites these days. Then, add on the holidays and all the spending and expenses associated with them — that combination leads many of us to feeling unsure, unsettled, overwhelmed, and stressed about our livelihoods and financial future. 

Did you know? Bankruptcy is a form of debt relief where the ultimate goal is to receive a discharge from debts. It is a  complex area of the law, but there are various resources available to help you learn about the process.  As you begin to evaluate whether bankruptcy is the right option for you, consider these 7 points to help you learn what may be best for your financial situation. As the adage goes — and it couldn’t be more true here — everyone is different and no two situations are alike.

1. Personal bankruptcy cases are, generally, one of two types: Chapter 7 or Chapter 13.
Chapter 7 bankruptcy cases are known as a liquidation or straight bankruptcy, and allow people or businesses to get rid of most debts without making payments to creditors. This chapter is typically used by those whose don’t have secured debts they are still paying — e.g. car loans and mortgages. In some cases, chapter 7 debtors can receive a discharge in as little as 90 days.

Chapter 13 bankruptcy cases reorganize debts and allow people to propose a repayment plan where they commit to paying a certain amount to their creditors over 3–5 years. After the plan is confirmed and all payments are made, chapter 13 debtors receive their discharge.

2.  Not all debts can be discharged.
Some debts, like child support, alimony, back taxes, and (usually) student loans are not dischargeable. Therefore, even if you file for bankruptcy relief and receive a discharge, you will still be liable for those debts. ProTip: If the majority of your debts are the types that cannot be discharged, then bankruptcy may not be the best option for you. 

3. Bankruptcy will stop collection attempts and foreclosures.
Creditors are permitted by law to attempt to collect debts. Generally, they can contact you between 8 a.m. and 9 p.m., but they are not permitted to harass you. Filing for bankruptcy will stop all collection efforts including telephone calls, letters, repossessions, and foreclosures. In some instances, after someone files for bankruptcy, creditors can be required to return property repossessed before the case was filed. 

4. For some, bankruptcy can help their credit score. For others, it can hurt it for a period of time.
A bankruptcy filing is a matter of public record and will be reported to the credit bureaus.  Chapter 13 filings are removed from your credit report after seven years and chapter 7 filings are removed after ten years. Immediately after filing, some people see a drop in their credit score — but for others, filing for bankruptcy improves their credit score because it reduces the outstanding debt. Whether filing for bankruptcy will improve your credit score varies from person to person. 

5. Bankruptcy is often a last resort, but it can be a good option for some.
Most often people explore bankruptcy when their income is reduced, their bills are increased, or, in some cases, both. Life events such as divorce, loss of job, or hospitalization can cause bills to quickly stack up and are among the most common reasons why people file for bankruptcy relief. If you find yourself in a difficult financial situation, the bankruptcy process is designed to provide relief. In fact, bankruptcy may be the most efficient option to addressing your issues and getting you on a path to a more secure financial future. 

6. It costs money to file bankruptcy, but there some pro-bono services are available.
Regardless of what chapter of bankruptcy you file, there will be certain fees and costs related to filing. Those fees include a filing fee — which is paid to the bankruptcy court — plus fees for credit counseling + attorneys’ fees. However, the fees are typically much lower than having to repay all of your debts.

You can search and find free or pro bono consultation to reduce the overall cost. Campbell Law School’s Stubbs Bankruptcy Clinic is one resource that provides pro bono consultation and representation services to select local individuals on a first-come, first-served basis.

7. Seek professional advice and don’t wait to do so.
Oftentimes, people wait to seek help because they feel the situation may get better or they are in denial. For those in financial distress or on the verge of financial distress, it helps to get advice early. Waiting may reduce the options available to you. A professional can help you navigate through it all, make an informed decision, and give you peace of mind to know the decision that you make is the right one for your personal financial situation.

Voices contribution by Ciara Rodgers, Director
Stubbs Bankruptcy Clinic at Campbell Law School

The Stubbs Bankruptcy Clinic provides services to residents in Franklin, Granville, Harnett, Johnson, Nash, Wake, Warren and Vance counties from its office in downtown Raleigh. For more information or to determine eligibility for the Clinic’s resources, click here.