Typical Reasons for Filing Bankruptcy
1. To Get Out of The Credit Card Trap.
A Debtor is caught in the credit card trap when the number of minimum payments due for all of the credit card debts uses all of the Debtor’s income to the point that the Debtor cannot reduce the debt or cannot make all of the minimum payments. In Bankruptcy, the Debtor can reduce or eliminate these debts to allow the Debtor to use its income to provide the necessities of life such as food, clothing, shelter, medical care, transportation, insurance and utilities.
2. To Obtain Relief from Burdensome Debts
Burdensome debts are those that are excessively high or excessively numerous. The most common burdensome debts are those arising out of deficiencies for repossessed property, those arising from major medical procedures, and those arising from loss of employment. In Bankruptcy, the Debtor can reduce or eliminate the debts.
3. To Stop Repossessions
Repossession of property can be stopped temporarily through a Chapter 7 bankruptcy or permanently through a Chapter 13 bankruptcy. Often it is possible to regain possession of property that has already been repossessed.
4. To Stop Foreclosures
Foreclosure of real estate can be stopped temporarily through a Chapter 7 bankruptcy or permanently through a Chapter 13 bankruptcy. In a state that allows foreclosure without the aid of the Courts (non-judicial foreclosure), bankruptcy must be filed before the real estate is sold on the Courthouse steps to stop the foreclosure. In a state that requires a court process to foreclose real estate (Judicial Foreclosure), the foreclose of real estate generally must be filed prior to the time the final judgment of foreclosure is entered by the Court.
5. To Stop lawsuits
The filing of a bankruptcy stops any further action in a lawsuit unless the creditor is able to obtain relief from the automatic stay. This relief is not easily obtained and in most instances the lawsuit will be stayed until the debt is discharged in bankruptcy. Upon discharge, the lawsuit will have to be dismissed.
6. To Stop Garnishments and Avoid Liens
Most debts must be reduced to a judgment through a lawsuit before they can be collected through garnishment or lien. Certain governmental agencies collecting taxes and student loans can create liens against Debtor property and garnish Debtor wages without first filing suit. Hospitals can create liens without first filing suit. Most other debts must be reduced to a judgment prior to garnishment.
The filing of a bankruptcy stops collection of debts through garnishment and in many cases can result in the avoidance of any liens against property.
7. To Stop Creditor Harassment
The automatic stay created upon filing a bankruptcy case prohibits creditors from taking any further collection action unless they obtain a relief from automatic stay. If the creditor continues to contact the Debtor or takes any collection action after receiving notice of bankruptcy, the creditor could be sanctioned by the court.
8. To Provide for an Orderly Repayment of Debt
Often times a Debtor is able to repay all of its debts, but not under the terms demanded by the creditor. In those instances, a Debtor can file a bankruptcy to allow the Debtor to propose the orderly repayment of debt that is not burdensome to the Debtor