Benefits and protections that personal bankruptcy can provide
Connecticut residents know paying bills can be difficult in today’s economy. Filing for personal bankruptcy is an option that many people consider. Bankruptcy can eliminate certain debts and offer a fresh financial start.
When is bankruptcy the best option?
Bankruptcy is an option that can help many people who are struggling with debt. However, bankruptcy may not be the best solution for everyone. An individual may want to consider filing for bankruptcy if any of the following things occur:
- Income decreases due to job loss, layoff or unforeseen illness
- Assets substantially decrease in value
- Stress levels escalate due to financial issues
- Creditor harassment is no longer bearable
- Creditors are garnishing wages or levying bank accounts
Benefits of a personal bankruptcy
Depending on a person’s circumstances, there may be several benefits to filing for personal bankruptcy, which includes Chapter 7 and Chapter 13 bankruptcy. One advantage is an automatic stay of all collection activity. The automatic stay is a court order that goes into effect once a bankruptcy is filed. The automatic stay means that all creditor collection attempts must be stopped immediately.
The automatic stay can benefit people in a number of ways. For example, it means that creditors must stop garnishing wages or levying bank accounts. In certain circumstances it can also give people time to catch up on their mortgage payments and prevent a home foreclosure. Additionally, bankruptcy may be an ideal option for individuals facing debt from a motor vehicle accident because it can prevent suspension or revocation of a driver’s license.
The purpose of an automatic stay is to allow the bankruptcy to progress properly. Creditors who violate an automatic stay are subject to penalties such as fees and contempt of court charges. Utility companies are forbidden from turning off services and are required to turn any already shut off back on.
Another main benefit of filing bankruptcy is that most debts can be completely eliminated. This can give people a fresh start because any wages or property acquired after a bankruptcy is protected from creditors.
Which debts can be eliminated in bankruptcy?
Most types of unsecured debt can be eliminated by filing bankruptcy. However, a bankruptcy will not eliminate most secured debts, or debts for which a person pledged a specific piece of property as collateral if you want to keep that property. If there is nothing the creditor can take back or repossess, the debt is unsecured and can be discharged in bankruptcy. The following are types of debt that can usually be eliminated by filing for personal bankruptcy:
- credit card debt
- medical bills
- personal loans
- utility bills
The following are examples of debts that typically cannot be eliminated by bankruptcy:
- student loans
- income taxes which are less than three years old
- child support and alimony
Secured debts such as car loans are dischargeable but if you want to keep the vehicle, you have to continue making your payments. Additionally, money owed for violations of the law such as criminal or traffic fines are not dischargeable. Any debts not listed in the bankruptcy petition, or any debts acquired after the bankruptcy filing also do not qualify for discharge.
A bankruptcy filing stays on a credit report for up to ten years. However, it is still possible to obtain credit cards, car loans or even a mortgage after bankruptcy in order to build better credit.
An individual considering filing for personal bankruptcy can benefit from consulting with an experienced bankruptcy attorney. The attorney can provide knowledge and guidance and assist with finding legal solutions for financial and emotional relief.