What Are the Advantages of Filing for Bankruptcy?
Stop Creditors and Collections Activity
As soon as you file for bankruptcy, you automatically get a stay against creditors contacting you for collection purposes. Your debt is not automatically canceled, but your creditors won't be able to collect anything from you until your case is decided or the stay is lifted by the court. This means that during the process, you won't receive letters or calls from creditors, have your wages garnished, have your property repossessed, or have your home foreclosed upon.If you do receive any collection attempts during the stay, your attorney can file contempt of court charges against them. Your creditors will be required to stop the activities and could owe you monetary damages. You should know that a bankruptcy stay doesn't stop criminal proceedings, government tax audits, the collection of child support or alimony, or collections related to a co-debtor or co-signer. If you've filed for bankruptcy more than two times in a year, your stay isn't automatic.
Some or all of your debt may be discharged through bankruptcy proceedings. This is one of the biggest advantages of bankruptcy, but not all debts are considered for discharge, and in many cases, debt is restructured rather than discharged. The types of debt that are often considered for discharge include medical debt, credit card debt, personal loan debt, and the amount owed to utilities. Child support, alimony, jury awards for malicious injury, and government tax debt are never considered for discharge.Student loan debt is extremely difficult to discharge through bankruptcy, although it is possible. You have to show that you'd be unable to sustain a minimum standard of living for you and your dependents if you were to continue to pay your student loan. Even then, a judge will likely only discharge a portion of your student debt, and you'll need to restructure payments through the bankruptcy court on the remaining balance. However, any discharged debt is better than none.
Under Chapter 13 bankruptcies, most of your debt will not be discharged, but instead, will be modified so that you can afford to pay it off over time. This is the most common form of bankruptcy since it is much easier to qualify for than Chapter 7, in which most debts are discharged. You and your attorney will propose a repayment plan to pay off your secured debts over a period of three to five years.Additionally, many people choose a Chapter 13 bankruptcy over a Chapter 7 because they are more likely to be able to keep their home. Delinquent mortgage payments can be remedied over time and the mortgage company is not legally allowed to pursue collections activities as long as you make the agreed payments on time. Under Chapter 13, debt is consolidated and one payment is made at defined intervals to the bankruptcy trustee for distribution to creditors.
Maintain Ownership of Property
No matter if you file for a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, property exemptions play a critical role in what you'll be allowed to keep during the bankruptcy process. If you can exempt property from bankruptcy, it can't be seized to pay your debts during the bankruptcy. Exemptions allowed in bankruptcy vary by state but usually protect up to a specific dollar amount on property like wedding rings, motor vehicles, and tools of your trade.You should know that exemptions don't exist for luxury items like yachts, art collections, and vacation homes. These property items are considered extraneous and should be sold to pay off debts before filing for bankruptcy to see if you are able to cover your debt. Some jewelry items are also not considered for exemption, including antique jewelry or luxury items like expensive watches and cufflinks. Pets are usually safe from bankruptcy unless you own show animals or breeding animals.
Credit Score Improvement
Even though your credit score will take a hit no matter which type of bankruptcy you file for, you can start improving your credit score immediately, especially if most or all of your debt has been discharged. The bankruptcy will remain on your record for seven years (Chapter 13) or 10 years (Chapter 7), but you won't have all the debt dragging your score down. At this point, you have a clean slate that will allow your score to increase.You can start rebuilding your credit by getting a secured credit card that is guaranteed by a deposit you place on the card. Your credit limit is usually equal to the deposit you put on the card, and will likely have high interest and late fees, but as long as you pay your balance on time, you won't need this type of card for long. On-time payments and paying off balances are instrumental in raising your credit score.
Bankruptcy law requires anyone who files for bankruptcy to attend credit classes to learn about debt, budgeting, and other financial topics. Even if you think you've learned your lesson by having to file for bankruptcy, you probably still have misconceptions and bad habits that need to be addressed so you don't find yourself in a similar situation a few years down the road. If you don't learn how to correct what you did wrong, you're bound to repeat your errors.If you view your bankruptcy as a fresh start and an opportunity to reset your finances, you'll appreciate the opportunity to get some financial education. The course you'll take has to be approved by the Office of the U.S. Trustee, and even though you'll likely have to pay for the course, the amount will usually be on a sliding scale according to your income. You may also find free approved classes offered through various nonprofits as well.
Even though no one wants to declare bankruptcy, it can give you a light at the end of a very dark tunnel if you're currently buried under debt you can't pay. Once the bankruptcy is finalized, if you've chosen a Chapter 13 bankruptcy, you'll have one payment to make to the bankruptcy trustee every month. Other than that, you're free to start over. Under a Chapter 7 bankruptcy, you'll have significantly fewer, if any, debts and a blank financial slate.This is your chance to do things differently in terms of your finances. In many cases, we get in financial trouble when we're young and don't know better. Then, we spend our adult lives trying to catch up. A bankruptcy can remove this stress and allow you to rebuild your financial life the way you would have if you'd known better the first time. Your attitude, along with your newly acquired financial education, can protect you from falling behind again.Filing for bankruptcy is not always a bad move. In fact, for many people, it offers advantages that no other debt relief program has. Contact Stockton and Stern, LLC today to learn how bankruptcy might be beneficial for your situation.