Bankruptcy Versus Bad Debt Judgments
Bankruptcy attorneys know that owing a debt that you cannot repay causes the debtor many headaches. First, there are the collection calls and letters. These collection actions are meant to harass you into paying something on the debt. Since the creditor only has a certain number of years to collect before the statute of limitations runs, after a few years the creditor will file a lawsuit against you. After the creditor obtains a judgment, the statute of limitations clock is reset and the creditor has more time to collect by garnishing wages, or seizing bank accounts or property. In some cases, the creditor may have twenty years or more to collect on a debt! During this time fees and interest can increase the balance of the debt many times over.
An unpaid debt has serious consequences to your credit report. Any debt that is more than 90 days delinquent indicates that the individual is experiencing serious financial problems. A debt stays on your credit report for seven years after the date of the last payment. Even after the debt drops off your credit report, if the creditor sues you the judgment will be reported for an additional seven years.
One of the chief benefits of a bankruptcy discharge is it provides a final resolution of your unpaid financial obligations. The bankruptcy discharge is a permanent injunction ordered by the bankruptcy court against your creditors forbidding any collection action against you, forever. The discharge order is extremely powerful and the penalties for a creditor who violates this federal court order can be severe.
A report of your bankruptcy case will stay on your consumer credit report for ten years after the date you file bankruptcy (not from the date of your bankruptcy discharge as many believe). While on the surface a bankruptcy stays on your credit report longer than a bad debt (ten versus seven years), the truth is that a bad debt can linger and significantly harm your credit score for much longer than ten years. After a bankruptcy your debts are reported as “discharged in bankruptcy” with a balance of “zero.”
If you are struggling with debts you cannot afford to pay, consider filing bankruptcy sooner rather than later. The sooner you discharge your debts, the sooner you can begin your financial recovery. Delay in filing usually results in further harassment, lawsuits, and difficulties. Contact an experienced attorney today and discuss your legal options for discharging your debts.
When A Creditor Attempts To Collect A Discharged Debt
A bankruptcy discharge is an order from the United States Bankruptcy Court. The discharge is a court injunction prohibiting any attempt to collect on a discharged debt. Creditors are strictly prohibited from contacting the debtor by mail, phone, or otherwise; filing or continuing a lawsuit; attaching wages or other property; or taking any other action to collect a discharged debt. A creditor that violates this order is subject to contempt of court and may have to pay damages and attorney’s fees.
A creditor that contacts you in an effort to collect a discharged debt is in violation of the bankruptcy court’s discharge injunction. Usually such contact is a mistake and the creditor is unaware of your bankruptcy discharge. While claiming ignorance is not a valid excuse for violating the bankruptcy court order, informing the creditor that you have filed bankruptcy and received a discharge of the debt is often enough to stop future collection actions. The creditor may want to know certain information about the bankruptcy (case number, date of discharge, chapter, etc.) to update their records and stop further collection efforts. You can answer these questions or simply refer the creditor to your attorney.
It is good practice to document any post-discharge collection action by creditors. While these collection attempts are often mistakes, a main purpose of the bankruptcy discharge is to allow you to live your life free from creditor harassment. The bankruptcy discharge applies to the debt and enjoins any collection of the debt. Consequently, the discharge injunction applies to the original creditor, collection agencies, attorneys, and any other subsequent collector.
Your bankruptcy discharge is legal protection against creditor harassment concerning discharged debts. If you are repeatedly contacted by a creditor after your bankruptcy discharge, document the creditor contact and report it to your attorney. The law is on your side and will protect your right to a fresh start free of creditor harassment.
Options When You Have More Month Than Money
Many professionals, including bankruptcy attorneys, will advise a debtor who is unable to pay monthly debts to “investigate your options.” So how many “options” does a person have when there is not enough money to pay the bills? The answer is: three.
The first is the “Do Nothing” option. Debtors who engage in this option hope that by avoiding phone calls and collection letters the debt will somehow just disappear. That is the same magic that makes a two year old become invisible when she closes her eyes. Obviously if you won’t see it, the collection companies can’t see it.
The “Do Nothing” option is the worst option of all because the debt does not disappear. In fact, the debt becomes bigger with increased fees and interest. Additionally, the debt collection efforts become more aggressive and may result in harassing telephone calls to family, neighbors, or your employer. Finally, you will likely be sued, your property seized or your income garnished.
The second option is “Negotiation.” Many debtors have had positive experience with this option which may include direct negotiation with the creditor for better terms, or help through a third party like a credit counselor or an attorney. Unfortunately, many people do not realize the consequences of negotiation which may include a resulting tax debt, negative items on a credit report, increased debt through fees and default interest rates, and substantial third party fees. It is well documented by the media and state attorney generals that many debtors that attempt the Negotiation option (e.g. credit counseling, debt settlement, debt negotiation, etc.) end up in worse financial shape because they opted for debt negotiation. If you elect the Negotiation option, hire a qualified and experienced professional.
The final option is “Bankruptcy.” Many professionals describe Bankruptcy as the “final option,” but in truth it may be the best option when you cannot pay your bills. Bankruptcy can give an honest debtor breathing room to reorganize debt without the pressures from collection agencies. Bankruptcy can also legally discharge debt without increased fees or tax consequences. At the end of a bankruptcy case the debtor can go forward with a “fresh start” and new financial beginning.
If your family is struggling with more month than money, it is time to examine your options. In the end, choose the option that is best for your family. Speaking with a qualified bankruptcy attorney can answer many of your debt questions.