Considering Bankruptcy: Understanding What You Can Gain Through Bankruptcy

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If you have no way to pay your bills, you certainly need to consider bankruptcy. If you have an income but cannot repay your debts in full within three years while maintaining a reasonable standard of living, bankruptcy may be a wise option.

Bankruptcy isn't the solution when your motive is anything other than reasonable relief from your debts. The U.S. Bankruptcy Code was established to assist honest debtors, not to provide a haven for chiselers and charlatans. If your aim is to jerk some creditor around, weasel out of debts you can easily pay, evade child support, or generally just stiff someone, bankruptcy is the wrong route. No one should use bankruptcy for vengeance or as a stopgap measure, or as a ploy or a bargaining chip. Don't file bankruptcy unless you're serious about following through.

Bankruptcy can

• Halt almost every kind of lawsuit.
• Prevent garnishment of any wages you earn after filing.
• Stop most evictions if bankruptcy is filed before a state court enters a judgment for possession.
• Avert repossessions.
• Stop foreclosures.
• Prevent your driver's license from being yanked for unpaid fines or judgments. (The stay doesn't prevent revocation or suspension of your driver's license for failing to pay court-ordered support.)
• Bring IRS seizures to a skidding stop.

Bankruptcy generally doesn't prevent

• Criminal prosecutions.
• Proceedings against someone who cosigned your loan, unless you file a repayment plan and propose paying the loan in full.
• Contempt of court hearings.
• Actions to collect back child support or alimony, unless you file and propose to pay off that obligation during the life of your plan.
• Governmental regulatory proceedings.

In recent years, some self-proclaimed "mortgage consultants" and "foreclosure service" outfits have made a business out of essentially tricking their clients into filing bankruptcy. These con artists exploit the bankruptcy laws to delay foreclosure, collect rents from the property during the delay, and then head for the hills. In the end, unsuspecting clients usually lose their homes and wind up with a bankruptcy on their records without realizing they'd even filed for bankruptcy. Bottom line: Discuss your options with an experienced bankruptcy attorney, not some fly-by-night flimflam operation.

Stopping creditors in their tracks

The moment that you file a bankruptcy petition, a legal shield called the automatic stay kicks in, prohibiting creditors from contacting you, suing you, repossessing your property, or garnishing your wages.

After you file, a creditor can ask for permission to proceed with a repossession or foreclosure. But the creditor must obtain permission in advance, and the bankruptcy court judge may well turn down the creditor, if you propose a reasonable plan for paying that particular debt. (The following sections cover filing bankruptcy to eliminate some bills and pay others.)

Whenever a creditor is foolish enough to ignore the automatic stay, he'll have a federal judge on his back and may get zapped with a fine and an order to pay your attorney fees.