Do You Really Need a Chapter 7? Situations Where You Can Wait It Out Skip to main content

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Do You Really Need a Chapter 7? Situations Where You Can Wait It Out



Waiting can be a sound bankruptcy strategy

Image source: Flickr user brian donovan

If you're really deep in debt you can't pay and can't get past, you may think that a Chapter 7 bankruptcy is your best solution. But in some cases, it may not be. In fact, depending on your circumstances, you may want to wait it out and see what happens. Chapter 7 can be helpful to stop a foreclosure or protect equity in your home or another asset. But if you don't have anything to protect and you don't need to stop the foreclosure, it may be best to wait it out. Here are some things to consider.

Mortgage Deficiency

If you're upside down on your mortgage by a large amount and lose your home to foreclosure, you'll likely be left with a deficiency balance after the foreclosure sale. This occurs when the amount you owe on the loan exceeds the amount the home sold for at auction. If your mortgage balance was $150,000, but your home sold at foreclosure for $100,000, there is a $50,000 deficiency. The lender can come after you for this. If the fair market value is less than your mortgage, you can get this decreased. For instance, if the home was worth $125,000, then the lender is only out $25,000.

Sometimes a lender will pursue a mortgage deficiency and sometimes they won't. This is an unsecured debt and can be wiped out with a Chapter 7, but if they're not pursuing it and you don't have any other debts, it might be wise to wait it out and see if the lender takes any action. The bank has five years to file to collect on the deficiency so you can take a wait-and-see approach unless you need the Chapter 7 for some other reason.

No Assets and Statute of Limitations Ticking Away

If you have no assets, aren't employed or aren't earning a high wage, your creditors may not be able to collect from you. Since few wage garnishments are allowed in North Carolina (typically only for student loans, taxes and alimony or child support), your pay should be safe. They may be able to get money from your bank account, but that takes a lawsuit judgment. If you make it clear to collectors that you have no money to collect, they likely won't bother.

While they're not collecting, the statute of limitations is expiring on your debt. They usually only have about three to five years under North Carolina law to be able to sue you over the debt. After the legal options expire, threats to collect have no teeth. After seven years from the date of your last payment, the item will also fall off your credit report. If you've got a load of unpaid debts that are about to age off your credit report, filing Chapter 7 can make them linger. This is another situation where you may want to hold off filing and let your credit report self-clear before you file (or perhaps not file at all).

To find out what's best for you, come in for a free consultation with the debt experts at the law offices of John T Orcutt. We only recommend bankruptcy when it's an absolute fit and will tell you if you have better alternatives and what they are. Call now for an appointment at one of our convenient North Carolina locations.

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