Some people might be apprehensive about filing for bankruptcy, believing it may harm their credit scores or reflect poorly on their financial futures. However, this is very far from the truth. Filing for bankruptcy can actually stop the worst-case serious consequences of debt from occurring, such as foreclosure or losing a business. Once the bankruptcy has been completed, debtors will receive a fresh start from which they can build a solid financial future.
How Does Bankruptcy Resolve Serious Consequences of Debt?
- Foreclosure: Foreclosure is the worst-case scenario for homeowners behind on mortgage payments. Depending on the situation, filing for Chapter 13 bankruptcy can save homes. Filing for Chapter 13 bankruptcy will put an automatic stay into motion, which will halt all collection attempts, including foreclosure. For homeowners with multiple mortgages and undervalued homes, lien stripping is also a possibility. A lien strip allows some homeowners to eventually discharge second and third mortgages, and it will then make payments on first mortgages much easier to manage.
- Wage Garnishments: For people that owe tens of thousands in medical bills, student loans or other types of debts, creditors can garnish wages. Depending on where debtors live and what their personal financial situations are, wage garnishments can take a large percentage out of paychecks. Fortunately, filing for bankruptcy creates an automatic stay, halting attempts at wage garnishments. The debt will then be a claim in bankruptcy that can be dealt with in a number of different ways, including paying it back over time and/or receiving a debt discharge.
- Losing Your Business: Business owners facing difficult financial times could lose everything if swift action is not taken. Chapter 11 bankruptcy has several advantages for business owners. For example, Chapter 11 bankruptcy allows business owners to continue day-to-day operations. Business owners can continue to make decisions under the supervision of the bankruptcy court. Chapter 11 bankruptcy can also reorganize debts, making monthly payments more manageable. Like other types of bankruptcy, Chapter 11 puts a halt on collection attempts and lawsuits. All of the benefits put together give businesses the chance to become profitable again.
- Repossession and Harassment from Collection Agencies: Collection agencies are notorious for hounding debtors multiple times a day to make payments on past-due debts. Filing for bankruptcy can put a stop to annoying phone calls from collection agencies. Like other collection attempts, an automatic stay can keep the repossession agencies from taking back property, including furniture and household appliances bought with store credit cards. Once the bankruptcy has been completed, collection agencies cannot contact people over discharged debts.
- Losing The Car: For debtors behind on payments, losing transportation is a horrific consequence. Transportation is often necessary to get to work and to drive children to school and activities. Once again, our friend the automatic stay can halt repossession attempts on vehicles. Filing for Chapter 13 bankruptcy, can in some cases, lower the interest rates and monthly payments on car loans through a process known as the “cramdown.” Not only are repossession attempts halted, but some people can receive more lenient monthly payments.
Why Waiting to File for Bankruptcy is a Bad Idea
In most cases, the longer people wait to file for bankruptcy, the more severe the consequences become. Waiting too long can also lessen the impact of benefits afforded to debtors filing for bankruptcy. For example, filing for bankruptcy after losing a home or car, after a tax debt has turned into a lien on the property, after a business has no liquidity left, or after wage garnishments have taken effect. These consequences can cause other problems to snowball out of control. People can lose their jobs, apartments, homes, and their way of life by waiting too long to file for bankruptcy.
Don’t wait to reach out to a bankruptcy attorney to learn how to turn these problems around. Tackle financial issues head-on so you can receive a fresh start to your life.
The Sader Law Firm assists individuals and businesses throughout the Kansas City area avoid serious consequences of debt by both bankruptcy and non-bankruptcy debt relief settlement and negotiation.