The most important legal benefit to bankruptcy is the discharge of debts, which allows you, the debtor, to start over with a clean slate. However, there are many more advantages including protecting future income and stopping collection agencies.
BREATHING AND SLEEPING EASIER
Whether you can’t fall asleep at night or wake up in the middle of the night stressed and worried about your debts, the goal of a bankruptcy is to let you start breathing and sleeping easier. A bankruptcy is a way to deal with your finances and realize that there is a simple straight forward path out of the hole in which you may feel like you are stuck .
DISCHARGE OF MOST DEBTS
The goal of most bankruptcy cases is to have most of the unsecured debts discharged. This discharge eliminates any personal obligation to pay many types of debts. There are a few debts that are not dischargeable. If a creditor has a secured debt, the debt owed to that lien will have to be dealt with either during the bankruptcy in a chapter 13 or after the bankruptcy in a chapter 7 because the lien will survive the case. For most debtors, bankruptcy (especially a Chapter 7 bankruptcy) is a relatively quick and easy way to end creditor collection efforts, harassment, anxiety, lack of sleep, and marital stress normally associated with debt overload.
PROTECTION OF PROPERTY AND FUTURE INCOME
Bankruptcy is often the only sure way to protect your property from unsecured creditors (those who did not take a lien on property as collateral at the time of the transaction). Bankruptcy may provide total protection for a home, car, or other vital property. The amount of property that debtors can protect from creditors through exemptions in bankruptcy is, in many states, far greater than the amount that they can protect under the state law execution processes through which creditors attempt to seize debtors’ property or income. In addition, the bankruptcy discharge stops a creditor who has sued from being able to go forward on its judgment, therefore protecting your property from collection.
In addition, if you have any garnishments of wages or income or attempts to claim money from a bank account or other deposit account, these collection efforts may be stopped by the bankruptcy and protect your future income and earnings from being continually and perpetually available for collection from the majority of your creditors.
TOOLS FOR ELIMINATING OR MODIFYING SECURED DEBTS
A bankruptcy discharge does not, by itself, eliminate the liens on a debtor’s property that secured creditors have obtained before bankruptcy. However, the laws do give you ways to deal with most secured creditors. Many types of liens may be eliminated or reduced, either because they impair exemptions or because they are on property that is worth less than the liens. In a Chapter 13 case, payments on most other secured debts can be lowered, and a reasonable time can be gained to cure almost any defaulted secured debt. Often, one or more of these aspects of bankruptcy enable a debtor to retain a home, car or furniture that would otherwise be lost.
One of the most important and valuable advantages of bankruptcy law is the automatic stay, which typically goes into effect at the moment of filing bankruptcy, whether or not the creditor knows of the bankruptcy. The automatic stay is an automatic provision in the Bankruptcy Code that prohibits all sorts of collection attempts by creditors, allowing the bankruptcy to proceed in an orderly fashion. It forces an immediate stop of most creditor actions against the debtor, including repossessions, garnishments or attachments, utility shutoffs, foreclosures, and evictions. Many of these can thereafter be permanently prevented. The stay is also an effective way to end creditor collection efforts as they are no longer allowed to continue to call or otherwise contact you. Creditors who violate the stay risk contempt of court, money damages and attorneys’ fees. Beyond all this, the stay gives the debtor a breathing spell, time to sort things out.
Bankruptcy may offer the only possible way for an individual to keep or regain a driver’s license that is subject to revocation because of an unpaid debt arising from a motor vehicle accident. This, in turn, may mean employment and income for the individual’s family. In some cases, bankruptcy may mean freedom for a debtor who might otherwise be incarcerated for failure to pay support obligations or as a result of a contempt proceeding involving some other debt. The Bankruptcy Code also protects the debtor from many types of discriminatory actions by government bodies and private employers on the basis of unpaid debts discharged in bankruptcy.