When most people think of bankruptcy, they can only envision the negative consequences. They think of bankruptcy as a path to property loss, bad credit, higher premiums, higher interest rates, and embarrassment. However, bankruptcy is so much more than that. Although it does have its drawbacks, the benefits of filing for bankruptcy far outweigh the negatives for people who are struggling with debt.
Bankruptcy is a tool set forth by the United States Bankruptcy Code that gives debtors and struggling businesses a way to regain control of their finances. If you struggle with credit card debt, medical bills, incessant debt collectors, or impending foreclosure, bankruptcy can be your light at the end of the tunnel.
At Marshack Hays Wood, our Orange County bankruptcy lawyers are advocates for the many benefits of the bankruptcy process. We help our clients overcome financial hardship by guiding them through their bankruptcy filing process. If you are seeking financial relief from your debts, we encourage you to speak with our experienced attorneys. You can schedule a consultation with us by calling (949) 333-7777 or contact us online today.
What Happens When You File Bankruptcy?
Depending on which chapter you file for, your bankruptcy benefits will differ. If you file for Chapter 7 bankruptcy in California, you could have your unsecured debts discharged or eliminated. If you file for Chapter 13 bankruptcy, you have the chance to reorganize your debts and pay them down over time.
Immediately after you file, you gain the benefits of the automatic stay. This is one of the most important aspects of a bankruptcy case, as it is the main factor in giving you the breathing room you need. Then, you and your experienced bankruptcy attorney will work with your creditors and the bankruptcy court to work on achieving debt relief while still paying your creditors.
What are the Benefits of Filing for Bankruptcy?
Understandably, filing bankruptcy can be an incredibly stressful and emotional process. Those who file have likely struggled with debt for a while, and they may be desperate for a solution. Luckily, bankruptcy can be that solution. The immediate relief that bankruptcy offers comes from the automatic stay, which is an injunction imposed against your creditors.
The Automatic Stay
As soon as you file your bankruptcy petition, you receive the protection of the automatic stay. Bankruptcy Code Section 362 outlines the purpose and benefits of the automatic stay. Essentially, it stops creditors in their tracks and prevents them from taking any collection actions against the debtor or their property. It is perhaps the most important benefit that bankruptcy offers.
Below, we outline how the automatic stay gives debtors some financial breathing room after they declare bankruptcy.
Stop Repossession
If you are facing potential repossession efforts, filing bankruptcy can stop them in their tracks. When the automatic stay goes into effect, creditors are no longer allowed to pursue any collection efforts – including repossession. Therefore, bankruptcy can allow you to save your vehicle, especially if it is covered by California bankruptcy exemptions.
Stop Foreclosure
Foreclosure is a homeowner’s worst nightmare. If you have fallen behind on your mortgage payments, your lender may be threatening foreclosure. Through a bankruptcy filing, the automatic stay will stop your creditors from foreclosing on your home. This can ease your stress and give you the time you need to become current on your mortgage. You may even be able to save your home by using bankruptcy exemptions in California.
Stop Utility Shutoffs
Maybe you have fallen behind on your utility bills, and the utility company threatens to turn off the power or water to your home. This is a very stressful situation, but the automatic stay prevents them from turning off your utilities. Such a simple benefit can mean the world to someone who is already struggling to make ends meet.
Stop Collection Attempts
Creditors love to hound debtors about the money they owe. They may call you every single day, multiple times a day, in an attempt to get you to pay what you owe. These constant calls and collection threats can put a lot of stress on a person. Luckily, one of the main benefits of filing for bankruptcy is that it triggers the automatic stay, which disallows creditors from calling you or sending you letters about your debt. This can give you the peace of mind you need to get back on track.
Stop Wage Garnishment
Wage garnishment occurs when your creditors seek a court order to withhold a portion of your wages in order to pay them. If the court grants this order, the garnishment could make it even harder, if not impossible, to pay your bills. The automatic stay stops wage garnishments and prevents them from happening. By keeping your full paycheck, it will be easier to repay creditors and become current on payments.
Credit and Financial Education
Over the course of your bankruptcy case, you will take two mandatory courses: credit counseling and debt counseling. You must take the credit counseling course before you file and submit your certificate of completion with your bankruptcy petition. You will take the debtor education course during your bankruptcy case, and you must complete it before you receive your discharge.
Both of these courses will educate you on budgeting, investing, and finances. You will also learn about building and maintaining your credit score.
Improve Your Credit Score
While it’s true that filing for bankruptcy will initially damage your credit score, this slump won’t last forever. Many people who file for bankruptcy have been struggling with low credit scores for a long time before they file. As soon as they receive their bankruptcy discharge, they can work on rebuilding their credit. What’s more, is that many people actually have slightly higher credit scores than they had before they filed. This is because they end up with a better debt-to-income ratio.
Consolidate Your Debt
If you file for Chapter 13 bankruptcy, all your debts will be consolidated into one manageable monthly payment. This is how the Chapter 13 repayment plan works. Rather than paying numerous different debts, you can focus on paying one that includes all your debts to creditors. This makes repaying them much easier in the long run.
Discharge Your Debt
Whether you file Chapter 7 bankruptcy or Chapter 13 bankruptcy, your bankruptcy discharge will eliminate all eligible remaining debt that you have. In Chapter 7 bankruptcy, the discharge wipes out all of your eligible unsecured debts, meaning those that have no collateral. In Chapter 13, the discharge clears any debt that remains after you complete your repayment plan. Therefore, you could either end up with no debt or a significantly more manageable amount of debt after bankruptcy.
The types of debt that you can discharge through bankruptcy include the following.
- Medical debt
- Credit card debts
- Personal loans
- Phone bills
- Unpaid utility bills
- Court judgments from most unsecured debts
- Personal liability on certain secured debts if no reaffirmation agreement exists
- Deficiency balances
Keep Your Property
Declaring bankruptcy may also allow you to keep your property safe from your creditors. Those who file Chapter 13 often get to keep all of their property, including their house and vehicle, as they complete their repayment plan. Even if certain property is sold in a liquidation bankruptcy (Chapter 7), the exemptions under California bankruptcy laws allow you to protect some of it. Many people fear that they will lose everything if they file for bankruptcy, but this simply isn’t the case.
What Happens After Bankruptcy?
Once you have finalized your bankruptcy case and completed your repayment plan (if you filed Chapter 13), you will receive a discharge order from the bankruptcy court. This order prevents creditors from attempting collection actions against you in the future. Most, if not all, of your debts will be discharged. However, not all debts can be discharged through bankruptcy. Examples of these nondischargeable debts include the following:
- Student loan debt (including federal student loans)
- Certain tax debts
- Alimony and child support obligations
- Debts resulting from criminal penalties
Are There Drawbacks to Filing for Bankruptcy?
Yes. However, for most people, the advantages of bankruptcy far outweigh the disadvantages. Even if bankruptcy is an overwhelmingly positive choice in the long run, it’s important to understand the potential consequences of filing. The most significant drawbacks of bankruptcy include:
- Potential to lose assets
- Certain debts are exempt from a bankruptcy discharge
- Bankruptcy can be a long process
- You may face trouble renting or getting credit in the future
- Bankruptcy is a matter of public record
- Your credit score will likely drop
- Low credit limits and high interest rates
- Higher car insurance premiums
How Long Does Bankruptcy Stay on Your Credit Report?
Another drawback is that bankruptcy will stay on your credit report for a long time after you file. If you file for Chapter 7 bankruptcy, it will remain on your credit report for up to 10 years. If you file for Chapter 13 bankruptcy, it will remain on your credit report for up to 7 years.
Contact an Orange County Bankruptcy Attorney with Marshack Hays Wood Today
If you are struggling with debt and can’t seem to find a way out, filing for bankruptcy may be the best option for you. To find out whether bankruptcy is the right choice, speak with an experienced Orange County bankruptcy attorney with Marshack Hays Wood. We will evaluate your situation and give you sound advice about the most beneficial course of action. To schedule a consultation with one of our attorneys, please call our office at (949) 333-7777 today.
