When looking at things you should avoid, people typically try and avoid things that will hurt you like, poison ivy, the flu, a cold, hepatitis and AIDS. But why would Americans be so dead set against filing for bankruptcy and do everything they can to avoid the process, even to the point of causing further financial damage. When you think about it, the idea really makes no sense. People in financial trouble do the right thing and go see a bankruptcy attorney to discuss filing bankruptcy. The bankruptcy attorney tells them that filing Chapter 7 bankruptcy will eliminate all their credit card debts and send them on their way to a bright and happy future. The individual leaves the appointment and pride sets in. The questions start popping up in their head, "How will I be able to live without a credit card?", "What will my friends say?", "If I file for bankruptcy I will ruin my credit and I never will be able to buy anything on credit again". These are all worries with no factual basis attached. After talking themselves out of filing Chapter 7 they will continue on robbing Peter to pay Paul, while barely making minimum payments on all their debts.
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Usually this type of debtor will start searching the web for alternatives to filing bankruptcy. They will end up calling debt settlement companies and possibly even discussing a debt settlement with their creditors on their own. After unsuccessfully trying to settle their debts with creditors individuals usually go back to making minimum payments and hanging on until one small disaster strikes and their whole world goes upside down. If only they had listened to the bankruptcy attorney in the first place, all of this would have been a thing of the past and a small disaster would've been no big deal.
That brings me back to my point, why would a bankruptcy attorney tell a person that may need to file bankruptcy if they could settle their debts by negotiating something with their creditors? The answer is simple, they wouldn't. If someone walks into a bankruptcy attorney's office and says they have $5000 in debt and would like to file bankruptcy, the bankruptcy attorney would advise the client to try and offer a debt settlement to their creditors. In this case, the cost of filing bankruptcy would be as much as an individual could settle with their creditors for $.50 on the dollar. A bankruptcy attorney won't stake their reputation and law degree on filing a frivolous bankruptcy. If they say someone needs to file for bankruptcy, they probably need to file. After the changes to the bankruptcy code in 2005, filing Chapter 7 bankruptcy has taken on a new complexity. Now a person filing needs to qualify for Chapter 7 bankruptcy by taking a means test. Basically, the means test wants to make sure that they individual filing bankruptcy has no more than $150 disposable income left over at the end of the month after paying their living expenses. This does not include the bills that the Chapter 7 bankruptcy would discharge. After reviewing a debtor's situation, a bankruptcy lawyer will have a good idea if a person qualifies to file Chapter 7 or in certain situations file Chapter 13. At this point, if they individual questions the opinion of the bankruptcy lawyer, for fun they should just go consult another one and see what they have to say. If both have the same opinion it's probably a good idea to heed to the warning and proceed filing bankruptcy.
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