5 Great Reasons to File for Bankruptcy If You Are Struggling With Debt
About 14 percent of U.S. households — or roughly 17 million — owe more than they own, according to Federal Reserve Bank of New York estimates.
Yet a lot of people are reluctant to file for bankruptcy protection, even when they really, truly need it.
They let debts pile up, risk wage garnishment, incur repossessions and risk foreclosure.
They also endure mounting stress and the shame associated with an inability to repay debts.
Why do so many people do this to themselves?
Some people simply don’t know what bankruptcy really is, or they might think it’s only a tool for the very rich, or for people who are completely broke.
There has also always been a stigma surrounding the bankruptcy process, and there are a lot of common misconceptions and exaggerations about the downsides of bankruptcy.
However, the truth is that bankruptcies are both quite common and very effective tools for regaining control and financial freedom.
And, contrary to popular belief, the benefits of bankruptcy can be immediate, not just something you have to look forward to in several years.
Let’s take a look at some of the advantages of filing for bankruptcy and how a bankruptcy filing might be able to help you.
1. All Collection Activities Must Cease After a Bankruptcy Filing
As soon as a bankruptcy case is filed with the court, what is known as an “automatic stay” immediately takes effect.
An automatic stay stops all collection actions against a debtor, including harassing phone calls, threatening mail notices, and collection lawsuits.
The stay may also stop legal proceedings like repossessions, evictions, garnishments and home foreclosures, affording you both protection and peace of mind.
That means that one of bankruptcy’s biggest benefits is immediate—you will no longer be subject to stress-inducing calls from bill collectors, or have to worry that your home or car is about to be taken.
Any creditor who ignores the automatic stay is subject to being held in contempt of court, and they may be ordered to pay damages.
However, in order for the automatic stay to be legally binding, creditors must be notified so they can cease all their actions.
Getting the details right and notifying all creditors is essential to a successful bankruptcy filing.
That’s why it is a good idea to work with an experienced bankruptcy lawyer when filing a bankruptcy petition.
2. You Can Take Advantage of Asset Exemptions
One of the biggest advantages of filing for bankruptcy is the ability to protect your assets.
You may be surprised to hear this, since most people think of bankruptcy as a process where you lose absolutely everything and have to start over.
In fact, that common bankruptcy myth is far from the truth, as most people are able to keep the majority of what they own.
While the details vary depending on individual circumstance and the type of bankruptcy you file for, in most cases you will be allowed to keep the bulk of your assets.
That means you can keep many assets and possessions including:
- Your car
- Your home
- Your personal property, including clothes, furnishings, tools for business and more
- Your retirement accounts
- Government benefits like social security
- Child support and alimony payments
Georgia bankruptcy law on asset exemption can be confusing to non-lawyers, so it can be difficult to know which possessions you will be able to keep and what you need to do to keep them without legal guidance.
A good bankruptcy attorney can lay out all your options, help you decide what kind of bankruptcy to file for, and give you a blueprint for fulfilling all your obligations once you file.
3. You Can Lower the Amount You Owe
One of the least understood aspects of bankruptcy protection regards the discharge or consolidation of debts.
Under a Chapter 7 bankruptcy, you have the opportunity to discharge all unsecured debts, including those from credit cards and medical bills.
That means you will no longer owe those debts, and that you can start putting your money toward other bills you need to pay.
You will still owe on debts that can’t be discharged, including:
- Student loans
- Most tax debt
- Child support and alimony payments
You will also still be responsible for making payments on secured debts—car loans, mortgages, etc.—if you want to keep those possessions.
But for most people, the debts that can be discharged are well worth the effort and trouble of a bankruptcy, affording them new freedom, reduced debt and a fresh financial start.
A Chapter 13 bankruptcy lets you consolidate your debts and implement a court-approved repayment plan over 3 to 5 years.
This consolidation usually involves lowering the total amount of debt you owe in exchange for a pledge to make monthly payments to each debtor.
The amount you will owe is based on how much disposable income you have left after paying for essentials like food, housing, transportation and clothing.
Under this type of bankruptcy, your debts aren’t discharged, but your total debt liability will be lower and more manageable.
Not everyone is eligible for both kinds of bankruptcy, and deciding which one to file for—and all the details of the bankruptcy filing—can be very complicated.
You should discuss your situation with an experienced bankruptcy lawyer in order to determine and implement the best solution.
4. Bankruptcy Can Help Protect Your Job
Many people worry that a wage garnishment notice will negatively affect their employer’s view of them, potentially jeopardizing advancement or even threatening their current role.
As mentioned above, filing for bankruptcy can stop wage garnishments—and if you do it in time, you can prevent a wage garnishment notice from ever reaching your employer.
That is why it is important to file before your debt gets so out of control that your wages are ordered to be garnished.
Now you may wonder—aren’t bankruptcies public, so that my employer could find out about my money troubles anyway?
They are, but your employer should have no reason to check that, and it is also illegal to fire someone for filing bankruptcy.
That means you are protected if you are terminated as a result of a bankruptcy, and a good bankruptcy law firm can help you fight that termination if it should happen.
5. You Can Start Rebuilding Your Credit, and Your Future
Most people know about the damage done to your credit score after a bankruptcy, and that a bankruptcy stays on your credit record for 7 to 10 years.
What most people don’t know is that you can start rebuilding your credit from day 1 after a bankruptcy.
Although your credit score may be low when you file (although it needn’t be, if you don’t wait too long to file), you get to start with a clean slate and a much more favorable credit-to-debt ratio, which is a key factor in credit worthiness.
Many people are able to secure new lines of credit not long after their bankruptcy is discharged—sometimes in just a few months—and there are special credit-builder loans you can qualify for, too.
You can even get a mortgage after filing for bankruptcy, sometimes in as few as 2 years.
Opening new credit lines and paying them on time can help you rebuild your credit score, rebuild your life, and secure a brighter future.
Wondering How Bankruptcy Might Help You?
We can help. Talk to the experts at Speights and learn everything you need to know about filing. Call us at (770) 479-1500 today to set up a confidential bankruptcy consultation.
Amanda Speights is a co-founder and lead family law attorney at Speights Law, PC in Cherokee County. She is an experienced family law lawyer who handles an assortment of domestic cases, including divorce, child custody, child support, appeals and other types of litigation in the state of Georgia. To contact Amanda, please visit our contact page.