You’ve probably heard someone say that filing a bankruptcy case is the worst thing you can do. This conclusion is almost always followed by a horror story about it. It usually goes something like this. This person starts telling you about their “cousin” who filed a bankruptcy case. And after hearing about this poor “cousin”, you start wondering why any sane person would, even for a moment, consider filing such a case.
The problem with these stories is that they never reveal all the facts and/or the true picture of what really happened, assuming the story is true. And such stories are no substitute for competent legal advice if you’re facing real financial troubles. Worse still, if you are taken in by the story, you may worsen your own situation by waiting to get competent legal advice and taking protective action. Mixing procrastination with debt problems usually produces a needlessly difficult situation that may make it harder to resolve than it otherwise should have been.
If you are facing serious debt problems yet you also believe that filing a bankruptcy case is the “worst thing you can do”, that is certainly understandable. We’ve all been conditioned to believe that a “good” credit score is something akin to the Holy Grail. We seek it and we believe that we simply must have it or all sorts of calamities will befall us.
Don’t get me wrong. If you owe debts and you have the income and/or assets to pay those debts timely and as agreed, then that is precisely what you should do. Contrary to the belief of many, the purpose of the bankruptcy laws is NOT to scam or stiff those you owe. Rather, the purpose of the bankruptcy laws is to provide meaningful relief to those who really need it and to establish fairness among the creditors of those who truly are not able to meet their financial obligations as agreed. So, if you are losing sleep or find yourself in a stressful situation because of debt you cannot pay, what benefit will filing a bankruptcy provide for you?
Two substantial benefits are the “automatic stay” and the “discharge”. The automatic stay is an immediate benefit. It protects you from your creditors and almost all debt collection attempts. With few exceptions, it is imposed immediately the moment your case is filed in court. In nearly all cases, you don’t have to ask for it or do anything other than file your case to get this benefit. This means that, from the moment your case is filed in court, your creditors can no longer try to collect their debts from you. They cannot call you at home or at work, send collection letters to you, come to your home or work to collect, repossess any of your property, garnish your wages or bank accounts, sue you to collect their debt, foreclose on your home, or take any other action designed to may you pay. The main purpose of the automatic stay is to give you a breathing spell from your creditors and debt collectors. The automatic stay remains in effect while your case is in court unless the judge orders otherwise (and that doesn’t happen too often). So, immediately upon the filing of your case with the bankruptcy court, you will get the benefit of no longer having to deal directly with your creditors.
Bankruptcy Discharge is the Goal
The “discharge” is the ultimate goal in your case. It comes at the end. Most all types of debts are “discharged” at the end of your case. What does this mean? It simply means that you no longer have any legal obligation to pay the debt. And, since your legal obligation to pay is permanently eliminated, the creditors who hold this debt are forever barred from taking any action against you to collect on the debt. These creditors cannot, for example, garnish your wages or bank accounts to collect on their debt. They cannot call or contact you about the discharged debt. In short, they have to completely leave you alone. And these creditors are legally prohibited from contacting you about the debt. If they do, you may be entitled to a large award of monetary damages because, by contacting you about the discharged debt, the creditor has broken the law. If you have to sue the creditor because they broke the law, the creditor has to pay the fees and expenses of your lawyer.
However, not all types of debt are dischargeable. Common examples of debts that are not discharged are some taxes, child support, student loans (except in cases of extreme hardship), and criminal fines and penalties. If you have these types of debts, you will usually be required to continue paying these debts even after your bankruptcy case is over.
In the end, it’s up to you to decide if filing a bankruptcy case is worth it to you. If you are overwhelmed by debts you cannot possibly pay, filing a bankruptcy case can be a very effective way to get creditors and debt collectors off your back and substantially reduce or eliminate completely all your debts. This can lead to a less stressful and more peaceful existence for you and your family. As I’ve stated in many of my prior blog posts, you should seek the advice of a competent debt relief attorney who is experienced in and knowledgeable about debt relief in the bankruptcy courts in your area. A proper evaluation of your financial situation and whether or not a bankruptcy case is in your best interests is not something you can do alone. And you should never, under any circumstances, attempt to actually file your own bankruptcy case. Almost certainly, you will end up making your situation worse, not better.