Too Broke for Bankruptcy?

While it is not a requirement, most people who need to file bankruptcy are struggling with their current financial situation.  However, it is not necessarily true that the more broke you are the more you need bankruptcy.  In fact, some families I meet with who are in the most dire financial situations don’t need bankruptcy at all.  Here are a couple of examples of situations where bankruptcy might not be necessary:

#1 – Your Only Source of Income is Social Security

If you are living solely off of social security disability or you are retired and living off of your social security you don’t need to worry about a garnishment from your creditors.  Under federal law social security is exempt from execution – meaning that your creditors cannot take it.

A big reason people file for bankruptcy is to avoid wage garnishment or bank levy.  If you live completely off of social security, even if your creditors sue you and obtain a judgment against you they won’t be able to take social security funds.  Because of this bankruptcy may not be necessary in your case because even when armed with a judgment there won’t be much they can do (other than lower your credit score).

#2 – All of Your Assets Are Exempt

Each state has its own set of exemption laws that protect certain belongings from creditors.  This means even if a creditor has a judgment against you that certain assets will be protected.  So even if you owe several debts, if all of your assets are protected under your state’s exemption laws, again there isn’t much your creditor can do or take from you and bankruptcy may not be necessary.

Why You Might Consider Bankruptcy Even if You Are Judgment Proof

“Judgment proof” is a term lawyers use for a defendant that really doesn’t have a lot to lose from a judgment being entered against them – usually for the reasons I mentioned above, income  and assets are exempt.

And while your creditors may not be able to take any of your stuff or money, that doesn’t mean they won’t try.  You may still have to deal with debt collection lawsuits, collection calls, etc.  Bankruptcy stops all of that.  Bankruptcy deals with everything all at once and gives you the peace of mind that you won’t be on constant battles with your creditors, even if in the end that can’t take anything.

Photo Credit:  Dan Moyle