What will a bankruptcy do for you?

Bankruptcy filings are at an all-time high. In the last 12 months, nearly 2,000,000 people in America will have filed bankruptcy.

Who are these people?  Are you one of them?  If so, what can you do?

They are your neighbors, and this is true no matter what neighborhood you live in. Bankruptcy is an equal opportunity employer, so to speak.  The causes of bankruptcy are many, but frequently it is caused by irresponsible lending (as opposed to irresponsible spending), divorce, illness, accident, or job loss.

What will bankruptcy accomplish for you?

If you are unable to pay your bills, or make any significant progress in paying your bills, then you should consider filing a bankruptcy. Bankruptcy can stop just about every kind of lawsuit, prevent garnishment of your wages, stop collections,  stop repossessions, stop foreclosures, get your drivers license returned to you if it’s been suspended as a result of an accident that you had without insurance, and stop IRS collections.

Bankruptcy Not a “Cure All”

There are, of course, some things that you cannot do with a bankruptcy. For example, it cannot stop a criminal prosecution. If you file bankruptcy and  someone else has co-signed for your debt, or bankruptcy will not protect the cosigner.

Bankruptcy cannot stop contempt of court proceedings.  Also, bankruptcy will not stop actions brought to collect back child support or alimony unless you are filing a Chapter 13 bankruptcy to pay these obligations back. There are other actions that bankruptcy does not stop but these are the ones that affect most people.

There is some debt that will not be discharged in bankruptcy. These debts are referred to as non-dischargeable debts. They include student loans, alimony and child support, damages that you may owe as a result of a personal injury that you might have caused while driving illegally under the influence of drugs or alcohol, debts incurred fraudulently, criminal restitution, and taxes that are not more than three years old (tax discharge has lots of special rules – and to discharge taxes bankruptcy you will want to use an experienced attorney).

However, Most Debts are Discharged in Bankruptcy…

Most other debts will be discharged.  The common debts that we discharge in bankruptcy include credit card debt, medical bills, personal loans, payday loans with some exceptions, and, with respect to secured debt, sometimes we make the decision to allow a car or house go back to the lender and discharge that debt as well. However, as we will discuss in a later lesson, most people who file bankruptcy choose to keep their cars and houses and continue to pay on them as if they had not filed bankruptcy.

It is, of course, important to consider bankruptcy alternatives. If you don’t need a bankruptcy then it is probably not a good idea to file one. Filing bankruptcy is a very important decision and the ability to file bankruptcy to wipe out an unexpected debt that is beyond your ability to pay, for example, having automobile accident when your insurance has lapsed, is an important right to maintain.