Filing for Bankruptcy Can Help You Resolve Your Debts and Steer Your Credit Toward a Brighter Future

In a Nutshell: If you’ve never filed for bankruptcy, you may think it’s something to avoid at any cost. But filing for bankruptcy can be a shrewd financial move for people facing economic challenges. Acclaim Legal Services specializes in bankruptcy cases that allow people to leverage the legal system to get their financial house in shape.

Before the internet and online gaming, kids turned to analog methods to entertain themselves and pass the time. Playing freeze tag and hide-and-seek were popular ways to spend a sunny day when I was younger. But when we needed to get those competitive juices flowing on a rainy day, we broke out the board games.

Monopoly was never one of my favorite games. Sure, I liked the player tokens you could select to move around the board, and the multicolored money was memorable, but playing the game always seemed to take too long. That’s not to say it didn’t teach me a few things.

For example, it was during a game of Monopoly that I first learned of bankruptcy. A friend went bankrupt during gameplay, and, while I didn’t fully understand what that meant, the taunts and jeers of the other players informed me it wasn’t a good thing. But in real life, bankruptcy doesn’t have to be a negative event.

Acclaim Legal Services has been helping consumers pursue bankruptcy protection for more than 20 years. We caught up with Chris Jones, the Managing Attorney for Acclaim Legal Services, to learn how you can use bankruptcy protection as a strategic tool to put yourself on a better financial path.

Jones joined Acclaim Legal Services in 2004. He told us that people who are considering filing for bankruptcy can benefit from working with a law firm that focuses on handling bankruptcy cases.

“Some attorneys dabble in bankruptcy work, but it’s my opinion that specialization is key,” Jones told us. “I get a lot of calls from people who are seeking a substitution of attorney midway through their case because an attorney who doesn’t specialize in bankruptcies took their case and didn’t help them.”

Acclaim Legal Services is based in Michigan and represents people across the state. The firm maintains offices in the metro Detroit region, and the Michigan cities of Ann Arbor, Flint, Lansing, and Warren. Jones told us the firm’s Lansing office serves the entire western and northern portion of Michigan.

Acclaim Legal Services primarily represents consumers. In dealing with bankruptcies, the firm represents the debtor, which is the individual who owes money to a creditor. Jones told us Acclaim Legal Services doesn’t represent creditors, allowing the firm to take on more debtor cases and explore them from various angles.

“A fairly straightforward bankruptcy case can have a lot of nuances and variables that you’re not going to pick up on if you haven’t seen thousands and thousands of these cases,” Jones told us.

Maybe we weren’t following the official rules closely enough, but, when I used to play Monopoly, if you went bankrupt that meant the game was over for you. When you file for bankruptcy in real life, it can signal the start of a period of your financial recovery. Acclaim Legal Services handles both Chapter 7 and Chapter 13 bankruptcies.

Chapter 13 bankruptcy is much more complex than Chapter 7, which leaves more room for people to have misconceptions about filing for Chapter 13 bankruptcy. Jones told us that the biggest misconception around Chapter 13 bankruptcies is that they’re not as beneficial as Chapter 7 bankruptcies.

“A Chapter 7 bankruptcy is much shorter for the debtor, usually only lasting for a few months,” Jones told us. “But a Chapter 13 bankruptcy involves an extended time of restructuring, usually anywhere from 36 to 60 months, so some consumers perceive that since it’s for a longer period of time than it must not be as advantageous. A Chapter 13 is going to take more of a commitment to resolve with creditors, but certain things make it more favorable.”

When Acclaim Legal Services meets with someone who’s considering filing for bankruptcy, it asks them about their circumstances and what they want to accomplish. Jones told us clients who want to protect their assets should consider Chapter 13 because Chapter 7 can leave your assets at risk of being liquidated by a bankruptcy trustee or creditors. A bankruptcy trustee is someone courts appoint to supervise a debtor’s assets during a bankruptcy.

Chapter 13 allows you to retain possession of your assets during restructuring and use a reorganization plan to resolve liens through the payment of creditors.

Acclaim Legal Services conducts an income analysis on its clients to confirm whether steering them toward Chapter 7 or 13 will best serve them. Jones told us it’s important that the firm gains an understanding of not just a client’s income but about the income for their entire household.

“A lot of people think that their spouse’s income won’t have to be considered because the spouse isn’t filing for bankruptcy, but that’s not right,” Jones told us. “You’re required to report gross earning information for every household member. If a client is above the published income guidelines, I don’t really need to get into an analysis of whether Chapter 7 or 13 is better because they’ll have to be in a Chapter 13 due to their earnings.” 

Most of us aren’t dealing with bankruptcies every day. If we were, then we probably wouldn’t require legal services to make sure filing for bankruptcy could help us out of a jam. Jones told us many clients of Acclaim Legal Services contact the firm when they learn about a pending foreclosure on their mortgage, a repossession of a vehicle, or a garnishment of their wages.

Our credit scores are important because they influence our ability to secure loans and credit cards. Some people may think that filing for bankruptcy will cause their score to plummet, but Jones told us that isn’t always the case.

“The majority of my prospective clients are already in a distressed credit scenario, and a bankruptcy filing isn’t going to do anything but improve their situation,” Jones told us. “The biggest thing that people struggle with in regards to credit is their debt-to-income ratio. That’s what can drag credit scores down, but when Chapter 7 or 13 cases are filed, those credit line items update to zero balances.”

Of course, a discussion about finances in the 2020s wouldn’t be complete if it didn’t touch on the effects of inflation. Acclaim Legal Services is seeing numerous cases where relatively high earners are seeking the firm’s help because they’ve relied heavily on credit products to pay their bills. Jones told us that many of them have maxed out their credit cards and reached a point where they can’t afford to make their minimum payments anymore.

According to Jones, people who file for Chapter 13 bankruptcy can pay off their credit card debt much faster than they would if they followed a plan of submitting the minimum payment to their credit card company every month.

Buying a house is one of the most expensive purchases many of us will ever make. If you’ve bought your dream home, then you’re probably going to fight to keep it if someone is threatening to take it away. 

“Mortgage companies have basically put people in a bad position by offering forbearance agreements with an assurance of assistance when the forbearance period expires only to commence foreclosure proceedings, and they then use the leverage they have to get borrowers to acquiesce to a mortgage modification with higher interest rates and longer terms,” Jones told us. “Chapter 13 is a very effective tool to avoid that situation and give you another outlet.”

One of the great things about being young is that you’re not faced with decisions where choosing the wrong option can hurt your financial future. When your toughest choice on any given day is whether to pick the top hat or the thimble in Monopoly, then that’s a pretty good day. The consequences of opting to file for bankruptcy can have long-lasting ramifications, which is why it helps to seek the expertise of a law firm such as Acclaim Legal Services.

Though filing for bankruptcy can help you improve your financial outlook, it’s not a solution that benefits everyone. Jones told us he talks to prospective clients to see what other options they have before advising they consider filing for bankruptcy.

“I have discussions with people about the minimum and maximum terms of a Chapter 13 plan, and I also identify what their likely Chapter 13 payment will be,” Jones said. “If you think you can get on top of your debt on your own within 36 to 60 months or a similar timeframe, then you don’t need bankruptcy protection.”

Some people, perhaps scarred from childhood memories of losing big at Monopoly, think there’s a stigma around filing for bankruptcy. Jones told us the fact that a bankruptcy will appear on your credit report for a number of years does not mean it will adversely impact your credit over that same period of time. 

“You don’t have to be concerned that there will be some unknown consequence of filing for Chapter 13,” Jones told us. “Some people have this perception that it’s going to hurt them. But it isn’t a boogeyman in the room — Chapter 13 is a tool that can help you resolve debt.”