According to a new report from the Federal Reserve Bank of New York, debtors
in Illinois and around the country are more likely to avoid filing Chapter
7 or Chapter 13 since the 2005 bankruptcy law overhaul. However, the report
also indicates that bankruptcy may not be as bad as many would like the
public to believe it is, largely due to a poor general understanding of
how bankruptcy works.
The report states that people who sink into insolvency rather than filing
bankruptcy not only stand to lose substantial amounts of retirement savings but are
also less likely to pass basic creditworthiness tests and obtain lines
of credit than those who file for bankruptcy. In some cases, the report
says, bankruptcy is actually a solid strategic financial move that shows
potential creditors that the debtor can recognize a poor economic position
and take steps to amend it.
Much of the negative public perception of bankruptcy comes from debt consolidation
companies, which have a vested interest in convincing consumers not to
file bankruptcy, or the perception that it is too difficult and costs
too much. This results in more debtors struggling with heavy debt services
and making only monthly minimum payments. The report says debtors who
file bankruptcy actually have access to more and better large-purchase credit.
When determining whether
Chapter 7 or Chapter 13 bankruptcy is appropriate for a given client, an attorney
might begin by looking at the client's payment history and overall
financial health to determine whether or not the client is in a position
to repay any or all of the outstanding bills. The attorney may then offer
a settlement to the client's creditors reducing or eliminating the
debt service or pursue the case in court.