Benefits of bankruptcy may seem like an oxymoron and I know it’s an unusual way to start a blog about bankruptcy strategies with detailing its benefits, but today, filing bankruptcy is an acceptable way to address one’s financial challenges and is an accepted business tool when used strategically. Bankruptcy is no fun, but it is a perfectly legitimate business tool sanctioned by the bankruptcy laws of the United States of America, and it was created to give people a fresh start.
Rather than having endless debt hanging over your head for the rest your life or for many distant years to come, bankruptcy laws are designed to give you or your business a way to start over, and in some ways it can also benefit creditors. Filing bankruptcy is not the end of the world.
Let’s do a quick review of when filing bankruptcy will help immediately, and also discuss those areas in which it generally does not help.
Benefits of Bankruptcy:
- Stay real property foreclosures.
- Stay personal property sales and automobile repossessions.
- Stay and prevent garnishment of wages after you file.
- Bring IRS enforcement actions to stop.
- Stay some landlord evictions.
- Stay almost every kind of civil lawsuit.
- Prevent your driver’s license from being pulled for unpaid judgments or fines.
- Depending on the type of bankruptcy filing, you might discharge many old debts and or greatly reduce many other debts, including some IRS obligations that are more than three years old from the date of filing the tax return.
Sometimes bankruptcy can be used to pay all or some of your debts over time. If some of the debts do get discharged, you usually have more money to pay off those remaining debts or other liabilities that cannot be wiped out or discharged in bankruptcy, such as student loans or fresh IRS tax liabilities.
Although bankruptcy will help you with the items listed above, there are number of debts that will not be discharged, or wiped away. They include:
- Alimony and child support.
- Student loans.
- Debts arising from fraud and misrepresentation.
- Financial repayments imposed on you by a criminal conviction.
- Tax debts arising during the last three years from the date of filing the tax return.
- Damages as a result of personal injury while you were illegally driving under the influence of drugs or alcohol.
- For fraud or defalcation cases while acting in a fiduciary capacity, embezzlement, or larceny
- For willful and malicious injury by the debtor to another entity or to the property to another entity
- To a spouse, former spouse, or child of the debtor, that is incurred by the debtor in the course of the Divorce or separation or in connection with a separation agreement, divorce decree or other order of the court of record or a determination made in accordance with the State or territorial laws by a government unit
Although filing bankruptcy will give you time to reorganize and regroup your finances and as discussed there are some benefits of bankruptcy, it usually will not prevent or stay:
- Contempt of court hearings.
- Criminal prosecutions.
- Actions to collect back child support or alimony, unless you file Chapter 13 plan proposed to pay these obligations over the life of your Chapter 13 repayment plan.
- Certain governmental regulatory actions.
What You Will Lose in a Bankruptcy Filing:
You can use the benefits of bankruptcy to get a fresh start, but that fresh start may come with some baggage, such as the following:
- Some people or employers may discriminate against you for filing bankruptcy, even though technically they aren’t supposed to.
- Relationships with your parents, your spouse and others may be strained.
- Sometimes because of actions that you have taken immediately prior to filing bankruptcy, friends and relatives and business associates may be forced to repay the bankruptcy trustee money that you have given them as repayment of debts within one (1) year of filing the bankruptcy for insiders, and ninety (90) days of filing the bankruptcy for non-insiders. Many times this can be avoided by careful timing of the bankruptcy filing.
- Needless to say, bankruptcy does affect your credit rating. Many bankruptcy filers can start to reestablish credit immediately, but normal timing for credit rehabilitation takes at least three (3) years. Usually you will pay higher interest rates on newly established credit.
- Since bankruptcy is a legal proceeding, it is public record. Public records are easily searchable and therefore it makes you susceptible to easy investigation. All of the bankruptcy pleadings associated with your bankruptcy case are on electronic PACER – available for all to see.
- You may lose some of your assets, primarily those assets that are deemed non-exempt. In most bankruptcies, because of the exemptions included in the bankruptcy law, you probably will not give up any of your belongings or retirement savings.
The benefits of bankruptcy can pave the way for a more secure retirement for debt-ridden older adults. It is natural to have many questions about the decision to file, especially when it involves factors like your social security income and retirement accounts. Call the Harris Law office today at 775-786-7600 for a free consultation, also visit our new Facebook Page for more information.