RI Bankruptcy Blog

When is a Providence bankruptcy filing the right choice for your debt problems?  For each person, the answer is different.

Some debtors are so overwhelmed with credit card debt, it affects their health. Others experience strained family relationships, or difficulty concentrating at the workplace.

They feel as though they were treading water in the middle of a great ocean; sinking fast with no land in sight.

Although a Providence bankruptcy filing is not typically anyone’s first thought, the majority of clients make the bankruptcy decision after running out of options.  They can’t improve their income, or cut their living expenses any further.  There is no “extra money” to cover anything beyond the basics: shelter, food, transportation, medicine, etc.

Aggressive debt collection and lawsuits often force a debtor to calling a Providence bankruptcy lawyer.  I have helped 100’s of clients with debt problems in the greater Providence area who were tired of the phone calls and legal threats.

Bankruptcy can really turn things around for someone who wants to improve their overall financial health.  It worked for Walt Disney, H.J. Heinz, Milton Hershey and Henry Ford.  Each allowed bankruptcy to solve their financial problems and each later achieved spectacular success.

As you determine the best path to deal with your debt situation, consider the following pros and cons to filing for bankruptcy relief.

Possible Disadvantages to filing bankruptcy

1 – You have to stop living on credit cards

Most people prefer to have a safety net when doing something dangerous.  And life can be dangerous, or at least dangerously expensive.  Ideally, 6-8 months of our fixed living expenses should sit in a bank account ready to act as our safety net.  Without such savings, however, people often rely on costly credit cards as a substitute.  As you would guess, all credit card accounts will be closed when you file bankruptcy; even accounts that have a zero balance.

2 – One bite at the apple . . . . At least for now

After a Providence bankruptcy filing, you would be unable to file another Chapter 7 bankruptcy case within 8 years of receiving a discharge.  A second Chapter 13 bankruptcy case has special waiting periods as well.  A qualified bankruptcy lawyer can explain important factors to help you determine if it is better to file bankruptcy now, or to wait.

3 – Who will find out about your bankruptcy

Your Chapter 7 bankruptcy filing will be on your credit report for as long as 10 years.  It also becomes searchable in the federal court case register.  Unless the searching party has special access to search these records, however, the general public won’t know you filed.

4 – Not all debts are dischargeable

The majority of consumer debts, if incurred in good faith, are dis-chargeable in a Providence Chapter 7 bankruptcy.  These debt problems include medical bills, unsecured loans, credit cards, payday loans, car repossessions, and mortgage foreclosures.  As a reminder, if you elect to keep your house and car, the creditor has a security interest in the property until the loans are paid in full.  In other words, you will keep making these payments for as long as you wish to retain the house and car.  Most student loans, child support, alimony, most taxes, and debts incurred in bad faith, car generally not dis-chargeable in bankruptcy.

Benefits of Filing for Bankruptcy

1 – You can protect your property from creditors

Rhode Island bankruptcy exemptions protect as much as $ 500,000 of equity in a house that is your primary residence.  It also protects generous amounts of equity in cars, household goods and furnishings, retirement accounts, jewelry, etc.  There is even a “wildcard” exemption that can be used to protect a certain amount of cash, money in the bank, income tax refunds and personal injury settlements.  Because these exemption laws are so powerful, most people who file a Chapter 7 bankruptcy are able to keep 100% of their property.

2 – You may eliminate old income tax debts

Old income tax debts may be dis-chargeable in bankruptcy, if they were due more than 3 years ago, you filed your tax returns accurately and on time, and you meet a few additional requirements. Although a Providence bankruptcy filing may help with old income taxes, it does not discharge sales taxes, payroll taxes, or recent income taxes.

3 – Your Credit Score can recover fast

Your FICO credit score is based on several factors, including payment history, credit utilization rate, age of credit accounts and your debt to income ratio.  Bankruptcy will help get you back on your feet fast because it will close out the damaged accounts and stop the downward spiral of late payments and defaults.  After you receive your bankruptcy discharge, positive steps to rebuilding your credit can help you obtain a 720 FICO score in as little as 12-18 months.  While I don’t encourage taking on new debt too fast, I have seen clients get approved for a new credit card within 3 months, a car loan in 6 months, and a mortgage in 2 ½ years.

4 – You receive an honest “fresh start”

When your financial picture looks like it was drawn on an Etch a Sketch, you would do anything to get a fresh start, or a do-over.  A Providence bankruptcy can do just that.  You can actually wake up from the financial nightmare and begin to chart a new course.  You can start focusing again on the future and develop financial goals for your kid’s education, buying a home, or saving for retirement.  But first, you should set up a savings plan to build an important safety net in order to avoid future debt problems.

5 – You can stop harassing debt collectors, lawsuits, and wage garnishments

Not all debt collectors are bad.  Some follow the law, while others simply don’t.  The ones who violate the Fair Debt Collection Practices Act, will harass you at work and home until you reach your breaking point.  Here is some good news.  The instant you file your Chapter 7 bankruptcy petition, all collection activity stops.  Everything gets real quiet.

If you have been struggling with debt for years and it is not getting any better, now may be the time to consider a Providence bankruptcy filing.  Read reviews from clients who trusted Attorney Mark Buckley, a CFP® professional, to solve their debt problems and call 467-6800 for a free bankruptcy consultation.  Serving clients in Providence, Pawtucket, and Warwick.