What Are the Advantages of Filing for Bankruptcy?
Feeling like you are in way over your head when it comes to your bills can be disruptive to your life and even to your relationships with family and friends. You may worry about your job if your employer receives a notice to garnish your wages.
Bankruptcy may be an intimidating process, but there are many benefits to seeking legal relief from your debts. You may think that the biggest advantage is just getting out from under a pile of bills.
Getting a fresh financial start may be the most significant advantage to filing bankruptcy. But the truth is, there are a lot of advantages to filing for bankruptcy that you may not have considered before.
While the entire Chapter 7 process takes 4-6 months to complete, most people get nearly immediate relief from the stress of being behind on bills and receiving intimidating calls and letters from creditors.
No More Harassing Phone Calls from Debt Collectors
When you file for bankruptcy, you are granted what is known as an automatic stay. In plain English, this means that most collection efforts must stop while you go through bankruptcy proceedings.
If you feel a sense of dread every time your phone rings or when you open your mailbox, that will quickly come to an end. Once you file for bankruptcy protection, your bill collectors can no longer call you, mail you collection notices, or bring lawsuits against you.
You also don’t have to live with the stress of having your car repossessed, being evicted, losing your home, or having your utilities turned off for non-payment.
If creditors continue to contact you — even after they’ve been notified by the clerk of the bankruptcy court of your petition — they can be held in contempt of court or ordered to pay damages.
Bankruptcy Can Stop Wage Garnishments
If your wages are currently being garnished or you have reason to believe they soon will be, filing Chapter 7 bankruptcy can halt or prevent most wage garnishments. This is another advantage filers get from the automatic stay that is triggered by filing your petition with the bankruptcy court.
There are a few exceptions where a wage garnishment will continue despite your pending bankruptcy case. The most common is child support collections.
When you speak to an attorney about whether filing for bankruptcy is right for you, it’s important to discuss the types of debts you owe so you get the best advice for your personal situation.
You Can Protect Your Assets
A lot of people stay stuck in the cycle of debt because they believe they will “lose everything” if they declare bankruptcy. Because Chapter 7 is known as the “liquidation chapter” it’s easy to imagine all your things being seized and sold off by the bankruptcy trustee to satisfy your creditors. But the truth is, in over 95% of bankruptcies the majority of assets are retained.
You don’t have to give up your car, home, furnishings, or clothes. In California, figuring out the right exemptions to protect your assets can get complicated, so you’ll want to talk to a lawyer and figure out what is right for you and your unique situation. Chances are you will be able to keep more of your assets than you think.
You Can Protect Your Retirement Savings
If you’ve been dipping into your retirement accounts in an effort to avoid filing bankruptcy, this may not be the best strategy for you. Not only are you reducing the value of your retirement accounts, you’re probably paying unnecessary penalties and creating significant tax liabilities.
Because federal bankruptcy law protects your 401(k) and many other types of qualified retirement accounts from creditors, cashing out these accounts to satisfy creditors isn’t a good idea.
You can file for bankruptcy without jeopardizing your retirement savings but you need to understand how to manage your accounts so don’t inadvertently cause the bankruptcy trustee to believe you have engaged in fraudulent activity.
If you think bankruptcy might be the right thing to do, speak to a client-centered bankruptcy practice that will discuss your entire financial situation and help you assess whether filing for Chapter 7 or Chapter 13 is the best option for you now and for your future.
Financial Education is Part of the Bankruptcy Process
Many people are intimidated by financial matters. Money can be a taboo subject. Or you may have grown up in a family where finances weren’t talked about — or even worse, money was a cause of fights and stress.
The truth is, a lot of people don’t get a lot of good advice about spending habits and budgeting from their families as they are growing up.
Every individual who files for bankruptcy is required to take credit counseling as part of the process. If you’ve made some financial mistakes, look at this educational requirement as an opportunity to make the most of the fresh start you’ll be getting when your debts are discharged as a result of your bankruptcy case.
You’ll learn how to create a better financial future for yourself and your family as you emerge from bankruptcy.
You Can Rebuild Your Credit Faster
If you’ve been struggling with your bills, chances are your credit score isn’t the best. And filing for bankruptcy will be another mark on your credit report. Most bankruptcies will remain on your credit report for 7-10 years but think of the day you declare bankruptcy as a line in the sand.
If you didn’t file and you kept struggling to pay your bill or weren’t able to pay them consistently, your score would continue to decline. Your bankruptcy wipes the slate clean. It creates a singular event from which to start rebuilding your credit. It also improves your debt to income ratio which is a factor used in calculating your creditworthiness.
With the credit counseling you received as part of your bankruptcy case, you’ll be able to make better decisions about your finances moving forward. And for some people, they’re able to apply for and receive new lines of credit within a year of their bankruptcy. Also, if you have automobile or home loan payments, your on time payment of these bills can be used to jump start the credit rebuilding process.
Use Newly Available Money to Pay Debts that Aren’t Discharged
While filing for Chapter 7 bankruptcy wipes out most debts, there are some types of debts that can’t be discharged in bankruptcy. The most common types of debt that aren’t eliminated in a bankruptcy case are:
- Student loan debt
- Recent tax liabilities
- Child support payments
You may think it isn’t worth it to file for bankruptcy if these debts remain, but most people find that when they’re no longer struggling to pay credit card and medical bills, they can make the payments necessary to keep current on their student loans or other obligations.
To determine if Chapter 7 makes good financial sense for you based on the types of debt you have, you’ll want to speak to an attorney who will help you assess your situation.
Are You Ready to Experience the Advantages of Filing for Bankruptcy?
The Law Offices of Larry D. Simons is a boutique, client-centered Bankruptcy and Estate Planning law firm in Mission Hills and Riverside. Our attorneys are Certified Specialists in Bankruptcy Law by the State Bar of California and pursue justice for our clients with the urgency of a big-city firm and the care of a small-town practice.
You don’t have to drive into the city to get top-notch legal representation. Our award-winning attorneys, Larry D. Simons and Frank X. Ruggier, have over 45 years of experience between them and are Certified Specialists in bankruptcy law.
When you speak with an attorney in our office, you’ll know exactly who you’re talking to; we are a small team that seeks to form relationships with all our clients.
Any legal advice you receive is coming from a practicing lawyer – we do not use paralegals because we believe you deserve top-notch legal representation by someone who knows the facts of your case and cares about your situation.
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