This is is the second post in a series of introductory posts. The prior post dealt with the question “what is bankruptcy?” That post gave an overall definition of bankruptcy and hinted at the beginnings of the bankruptcy process. The hope is that the prior post made the concept of filing for bankruptcy a little less scary and a bit more academic. The goal of this post is to provide a little bit more information on how bankruptcy can actually help you. This post is by no means going to answer all of the questions about this issue nor will it completely inform you of all of the ways filing for Chapter 7, Chapter 13, or Chapter 11, can help you. Rather, this post should start to give you the idea that filing for bankruptcy has a lot of positives and ways to help you move forward in your financial life. Later posts will address the specific topics introduced here.
Stop Creditor Collections
Let’s start with the big one! Even though all of the bankruptcy chapters will operate differently once filed, they all have one thing in common when they begin…all collections stop immediately! The moment your bankruptcy case is filed you are assigned a case number and are protected from your creditors. This is not a choice for your creditors this is the law. That law is the bankruptcy code which provides that upon filing a bankruptcy case you get an automatic stay. As the name would suggest, it is automatic. This law provides that all collections efforts against you must stop immediately. This means that creditors cannot call you, send you bills, initiate lawsuits, continue lawsuits, enforce judgments, send you to collections…etc. Many of our clients file for Chapter 7, Chapter 13, or Chapter 11 bankruptcy simply to “stop the chaos” of creditors attempting to collect. This allows them to step away from the constant fear of answering the phone or opening the mail and being harassed.
Save Your Home
Chapter 13 Bankruptcy is really good at helping you save your home from aggressive creditors. This can work whether you are actively facing foreclosure or whether you are just behind on your mortgage payments. The automatic stay mentioned above works to stop a foreclosure suit and can even stop a judicial sale from going forward. As long as the bankruptcy case is filed prior to the sale occurring your house will be protected. Through a Chapter 13 Plan of Reorganization you are able to repay any default in your mortgage payments over the next 3-5 years. Technically, a Chapter 7 Bankruptcy filing also stops the foreclosure case but it does not provide a mechanism for catching up on your mortgage default and can actually speed up the foreclosure process. This is a complex area of bankruptcy law that will be discussed at length in later posts. For now I just wanted to highlight the fact that this is an option for anyone considering bankruptcy.
Discharge Old Debt
I often times begin consultations with my clients by focusing them on what we are after in the bankruptcy case. For some it is saving their homes as we discussed above but for most it is getting free from their debts. I tell them that through the bankruptcy process we need to “keep our eyes on the prize.” That prize is the order of discharge that comes at the end of the case. A discharge order in a bankruptcy case means that any debts that arose prior to the filing date of the bankruptcy case are eliminated. There are exceptions to this such as child support and certain tax obligations. For the most part, all credit cards, medical bills, and legal bills are eliminated by virtue of the discharge order. Depending on the chapter under which you filed there is a Chapter 7 discharge, Chapter 13 discharge, and Chapter 11 discharge. By and large, the discharge is better for a Chapter 13 or a Chapter 11 but they all involve an elimination of a large amount of debt. Pretty nice prize!