Dealing with debt is really an awful feeling and can make life much harder. It's easy to wonder whether not paying your debt at all and just ignoring it is a good option. Or maybe that's what you've been doing and you're wondering what will happen if you keep ignoring your debt. Maybe you've been ignoring your debt but you're at a point where you can't ignore it any longer. Is bankruptcy a good option?
In this blog post, we will discuss whether ignoring your debt is a better option than filing for bankruptcy. You'll see that sometimes it may make sense to just ignore the debt, but that other times filing bankruptcy can put an end to the debt nightmare.
What is "Judgment Proof"
"Judgment proof" is a phrase used to describe folks who cannot have their debts collected by creditors.
When someone is described as judgment proof, it means that even if a creditor initiated a legal action and took them to court and won, that even if the creditor got a judgment against them there wouldn't be any money or property for the creditor to take to satisfy the judgment.
Folks who are judgment proof usually have minimum assets or income, which makes it next to impossible for creditors to get any money from them. Also, certain sources of income such as social security and veterans benefits are legally protected from debt collection, which is often a contributing factor to why someone may be judgment proof. For example, you would be judgment proof if you rented your residence, had no real assets other than the furniture in your home and your vehicle, and your only source of income was social security or VA disability.
Typically, judgment proof individuals are exempt from debt collection efforts due to financial insolvency, protecting them from creditors when they lack assets or income.
How Does Debt Hurt You?
Just because someone is judgment proof today doesn't mean they'll be judgment proof next year. Many folks are judgment proof at one time or another, only to go on and grow their lives and finances. Ignoring debts due to being judgment proof can backfire for these folks because their creditors may still be waiting for them and ready to begin collecting when the time comes. This can be devastating for someone putting in extra effort to advance their life.
Debt also impacts our mental health and even our relationships. A recent survey by Forbes cites 54 percent of people saying that they often or always feel stressed about their debt, and another 32 percent saying they sometimes feel stressed about their debt. The survey also notes that 59 percent of respondents said their debt lead to disagreements in their relationship and 54 percent saying that debt created tension in their relationships.
Maybe the most insidious thing about debt is that being in debt can lead to more debt. Many folks discover this when they find themselves trapped in a "debt cycle." This happens usually due to some combination of compounding interest rates, fees and penalties, and temptation to spend more after refinancing or balance transfers.
Having debt can also impact our ability to respond to emergencies requiring us to spend money we don't have in order to be with a loved one in need or protect a family member in dire straights. Having unpaid debt impacts your ability to access a line of credit, loan, or credit card, and can leave you left with your only real option being payday or title loans, which fuels the fire of the debt cycle.
Is Ignoring Your Debt a Better Option Than Bankruptcy?
The honest answer is that sometimes it actually may make sense to just let the debts go and ignore them. Someone who is judgment proof with no expectation of not being judgment proof in the future has no reason to do anything at all about their debts. These individuals have nothing to worry about as far as having money or property taken from them to repay their creditors.
But just because someone is judgment proof doesn't mean that debt collectors stop attempting to collect. Sometimes folks who are judgment proof still find themselves overwhelmed by stress caused by their debt, even though what money and property they have may be protected. These individuals may choose to file bankruptcy to put an end to the debt collectors and to finally have some relief.
If you're currently judgment proof but not planning on remaining that way, then ignoring your debts may not be a great option for you. If you're hoping to improve your financial situation, then ignoring your debts could backfire. Creditors typically don't stop trying to collect just because someone is judgment proof, which means that they're often ready and waiting to begin collecting once you're no longer judgment proof.
Getting out of debt can clear a path for you to improve your life and finances. Choosing to file bankruptcy can accelerate this process by allowing you to get out of debt faster, kickstarting your path to a better financial future, and getting rid of the stress that comes with being in debt.
Evaluating If Bankruptcy is the Right Decision for You
If you're trying to decide whether to file bankruptcy or ignore your debt, you should ask yourself the following questions.
What do you want for yourself in the future?
If you're currently judgment proof but don't want to remain that way, then that's a point for not ignoring your debt.
But if you're truly comfortable where you're at or if where your at is out of your control, due to being on SSDI, SSI, or something similar, then ignoring your debts isn't necessarily a bad choice for you.
Why do you want to ignore your debt?
You're tired. All of the stress from your debt has had a taken a serious toll on you and you're just ready to be done, no matter what it takes. If that means walking away from everything then fine.
I get it. I hear it a lot. It's a natural feeling that many folks experience as a result of the negative impact of debt, and it's one of the many reasons people eventually choose to file bankruptcy.
Here's the truth, a bankruptcy filing is often one of the only ways to truly get rid of your debt and all of the negativity it brings to your life. So when you say that you just want to ignore your debt, if what you really mean is that you just want to get out of debt and not have to deal with the nightmare that is living with overwhelming debt, then seeking legal advice from an Austin bankruptcy attorney and filing bankruptcy is probably the best move you can make.
Your Financial Future
If your goal is to have a better financial future, then one way or another you're going to have to address your debt.
This is the point where some folks who think they're smarter than everyone else like to pipe up and say words like "credit score" and "credit report" and "bankruptcy bad."
If you're at the point where you're considering ignoring your debt, then your credit is already taking a hit, and if you decide to ignore your debt then your credit is going to continue to suffer until all of the debts you owe finally fall off of your credit report. Choosing to file bankruptcy proceedings will actually allow your credit to improve faster and with a whole lot less stress involved, so the "cons" that everyone is always spouting off about bankruptcy aren't exactly right because they fail to acknowledge the situation of folks who consider bankruptcy in the first place.
Factors to Consider Before Declaring Bankruptcy
The decision to file bankruptcy isn't one to take lightly. It's important to consider your income, debt, and assets is crucial. Below are some of the basic things you should consider before deciding to file bankruptcy, and of course you should talk to an Austin bankruptcy lawyer to make sure that a bankruptcy case makes sense for your situation.
The first reason you want to consider your income is to help you understand type of bankruptcy you qualify to file. You'll also want need to know how much income you have so you can prepare a budget to know how much money you'll have left over at the end of each month after your bankruptcy. This is important if you qualify for a Chapter 7 based on your income, because if you have too much income left over after you pay your expenses the bankruptcy trustee may try pushing you into a Chapter 13 bankruptcy instead.
Start by understanding the different types of debt that you have. If you have property in your possession that you're paying someone for (home, car, furniture), that's secured debt because the property serves as collateral for the loan. Most of the rest of your debt is likely credit cards, medical bills, and personal loans, and that debt is all unsecured debt. If you have tax debt, unpaid child support, or debt from being the cause of a drunk driving accident, that debt is also unsecured debt but it's called "priority unsecured debt" and it doesn't get discharged in bankruptcy (these are just examples of the most common types of priority debt).
Next you want to calculate how much unsecured debt you have and how much secured debt you have. You'll also want to calculate your regular monthly expenses at this step. This will help you in the next step.
Now that you know your monthly income, unsecured and secured debt, and your expenses, you'll want to see if repaying your debts in the next 3 to 5 years is possible. If it is, and it's something you can manage comfortable then you probably don't need to file bankruptcy. If you can't repay your debt in the next 3 to 5 years then bankruptcy may be a good solution for you.
The last thing that you should do is determine what property you own or have a right to. This allows you to check whether you can protect your property using exemptions and can help you decide between fling a Chapter 7 or Chapter 13.
Types of Bankruptcy
The Bankruptcy Code creates different ways for dealing with debtors in different situations. There's a different legal process for the different types of bankruptcy, so it's important to hire a Texas attorney who knows how our trustees and bankruptcy courts apply bankruptcy law in our jurisdiction. The most common types of consumer bankruptcy, Chapter 7 and Chapter 13, serve different debt relief purposes for individuals facing financial hardship. Understanding the following bankruptcy basics is essential before deciding to file bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is available to folks who's income is below the median income in Texas or who's debt are primarily non-consumer debts (we see this most often for folks with debt from a failing/failed business). Chapter 7 is a great solution for folks dealing with overwhelming financial burdens who are ready to get rid of their debt quickly and move on. Usually the process takes about three to four months, and Chapter 7 bankruptcy discharge will typically eliminate most unsecured debt, such as credit card debt, medical bills, or personal loans. Chapter 7 gets a bad wrap as a "liquidation bankruptcy," and while there's truth to that phrase, most people who file Chapter 7 never have to give up any property and many of the folks who do give up property are satisfied giving up the property in exchange for getting rid of all of their debt.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy helps folks who don't qualify for Chapter 7 or who are in default on their mortgage and worried about losing their real estate (or behind on their car and want to avoid repossession). This type of bankruptcy allows for the reorganization of debts through a structured debt repayment plan with monthly payments, providing an alternative to liquidating assets. By filing Chapter 13 bankruptcy, individuals can prevent foreclosure and repossession while retaining their assets. It is particularly beneficial for those with a regular income source, offering a court-approved method to repay debts over time while maintaining possession of personal property.
In conclusion, ignoring your debts is a solution that may work for you. If works for some folks. you'll just want to make sure that if you choose that route you're not planning on improving your finances in the future. While the bankruptcy process is daunting, and it's almost always a difficult decision for folks to make, so many folks end up overjoyed that they chose a fresh start instead of ignoring their debts. Most folks only consider ignoring their debts because they're so tremendously overwhelmed by their debt that they just want it to go away now. So ignoring it is the fastest way to "make it disappear." Or so they think, but the truth is that ignoring your debts shackles you to your current financial situation and doesn't do anything to bring you the relief you actually desire.