The “B” Word. Ugh. You don’t want to file for bankruptcy – you may have to file for bankruptcy. And while it may not be your first choice it is a very powerful tool you have in your consumer tool belt. In fact, it is the trump card. The great equalizer. Many times your creditors have the upper hand, but with bankruptcy the playing field is not only leveled, but now leans sharply in your favor.

While bankruptcy is a powerful tool for dealing with your debt issues you must not jump into a bankruptcy without understanding all of the implications of a bankruptcy filing. As a bankruptcy attorney myself I always recommend that you seek out legal counsel to assist you with your filing. There are too many potholes for the unaware to fall into that can cause lasting damage.

Choosing the Right Chapter of Bankruptcy

For most consumers there are essentially two choices: chapter 7 or chapter 13. Depending on what your end goals are and frankly what the law says you qualify for will ultimately help you decide which chapter will best fit your needs.

Chapter 7 Bankruptcy

By a large margin chapter 7 bankruptcy is the most common form of bankruptcy that is filed. If your main problem is unsecured debts like credit card debt or medical bills than chapter 7 bankruptcy may be your best choice. Here are some of the pros and cons:

Pros

Cons
  • Must qualify based upon household size and income.
  • May lose some non-exempt property.
  • Limited tools available to deal with secured debts such as car and home loans.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is usually filed by those who have incomes that are over the median income limits and by those want/need the powerful tools only available in a chapter 13 bankruptcy. Chapter 13 requires a significant commitment on your part and an understanding that you are in this for the long haul.

Pros

  • Powerful tools for dealing with secured debts such as mortgage and car debt.
  • Ideal for people who are behind on house payments and need time to get caught up.
  • You will be able to keep most assets while going through the bankruptcy process.
  • Can voluntarily dismiss your case if necessary.

Cons

  • Longer process – typically 3 to 5 years.
  • Some payback to unsecured debts required.
  • Income received after filing is part of your bankruptcy
  • Court involvement in your life for 3 to 5 years.

The Automatic Stay

Regardless of whether you file a chapter 7 or a chapter 13 bankruptcy the first benefit (and one of the most powerful) is the Automatic Stay. Immediately upon the filing of your bankruptcy case with the court an order is issued called the Automatic Stay. This order stops all collection efforts against you. The following are stopped in their tracks:

Foreclosure

Wage garnishments

Bank levies

Lawsuits

Collection Calls

Collection Letters

Repossession

For many of the people I meet with the thought (or reality) of a wage garnishment or foreclosure is devastating. Bankruptcy can stop your creditors, give you time to catch your breath, and then put together a game plan in moving forward.

Resources:

Arizona Bankruptcy Blog
This is a compilation of articles I have written on bankruptcy and the bankruptcy process.

NACBA National Association of Consumer Bankruptcy Attorneys
This is a good resource if you are looking to hire a consumer bankruptcy attorney.

Bankruptcy Law Network
Great resource on bankruptcy process by bankruptcy lawyers from around the country.