Most individuals do not understand the concept or the legal importance of an individual being insolvent. Insolvency is a powerful tool in the debtor’s tool-box. If an individual is insolvent, then the need for the individual to file bankruptcy is nearly non-existent.

For many individuals, bankruptcy is not a choice they would make if they had another option. While filing bankruptcy serves to achieve a “fresh start” for the distressed debtor. For some, the fresh start comes at too high a price—literally.

Legal fees for filing for bankruptcy are high—ranging anywhere from $1,500 to $2,000 (and up—if additional motions are involved). In addition to paying the attorney’s legal fees, there is the cost of filing the motion and the costs associated with mandatory pre- and post-debtor counseling.

In addition to fees and costs, the debtor’s creditor score will reflect a bankruptcy that will stay on his or her credit report for ten years.

For many folks, filing bankruptcy is not a practical solution to their financial problem. Below are some examples where claiming insolvency is a preferred alternative to filing for bankruptcy:

  1. The debtor’s only debts are student loans and/or child support—which can’t be discharged in Chapter 7 or Chapter 13 bankruptcy. These debts are rarely dischargeable in bankruptcy. For instance, an individual would need to show an extreme hardship to sway the court to discharge student loans. The bankruptcy courts use the definitions utilized by the Social Security Administration.

  2. The debtor has little debt, e.g. less than $5,000;

  3. The debt(or debts) is over four years old;

  4. The debtor wishes to serve in a fiduciary capacity in the next few years, such as a guardian of a minor, a conservator of an aged family relative, a trustee of a trust. A bankruptcy filing could disqualify the debtor as a candidate.

  5. The debtor has a job whose security is so high that they would lose their security clearance (and job) if they filed bankruptcy;

  6. The debtor intends to apply for a job that requires that the applicant have no bankruptcy on their record. (While it is illegal for an employer or prospective employer to discriminate against those who have filed bankruptcy; there are certain types of jobs where, inherent in the job position, is the requirement that the person is responsible with their own money. For instance, a person applying to be a bank teller may be denied if they have a recent bankruptcy filing on their record). Police departments, sheriff’s departments and fire-departments have been known to not approve an application if the applicant had filed bankruptcy.

  7. The debtor has no job, owns no real-estate, has no bank accounts of any kind and has no unprotected assets. (In other words, all assets are protected from collection.) The debtor only receives Social Security income—which barely covers his basic necessities.

  8. The debtor expects to have additional debts in the near future that don’t exist today, e.g. medical debts.

  9. The debtor is in the middle of a non-bankruptcy loan modification with their bank. Filing bankruptcy could abruptly interfere or stop the loan modification in its tracks.

For those individuals who are insolvent, mailing, via certified mail, a “judgment-proof” letter can be very effective—IF the letter contains evidence (proof) of insolvency.

How Can Ms. Garrett help?

Ms. Garrett is able to assist individuals to determine, after conducting a thorough exam and analysis of their financial situation, whether they are insolvent. And if insolvent, providing them with future guidance and/or coaching (or legal services) in connection with preparing and following up on “judgment-proof” letters.

Bankruptcy is a wonderful solution for most, but not all, consumers. It is important to determine if bankruptcy or insolvency is right for you. The only way to make this important determination is understand your financial situation as it relates to these two important options.

If you wish to set up a consultation, Contact Ms. Garrett.

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