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June 14,2021

What Is the Advantage of Filing for Bankruptcy?

Bankruptcy can seem like an intimidating process for many people, especially if you have had little experience with the legal system. However, bankruptcy has many advantages, and the process can improve your financial picture in many ways. If you are considering a case or are facing overwhelming debt, discuss some possible advantages of filing with a California bankruptcy attorney

The Automatic Stay

If you cannot pay your debts and have fallen behind on payments, you are likely facing many types of collection actions. These can only increase your stress, especially if one or more creditors take legal action. Such cases can lead to judgments against you, which can result in wage garnishment and other enforcement actions. Having your wages garnished or your bank account levied can only reduce your ability to keep up with your other debts. 

Right after you file for Chapter 7 bankruptcy, the court issues an order referred to as the automatic stay. This orders “stays” – or prohibits – collection actions during the course of your bankruptcy case. As soon as a creditor is notified of an automatic stay, they should stop:

  • Collection phone calls
  • Collection letters
  • Lawsuits seeking payment
  • Wage garnishments
  • Repossession actions
  • Foreclosure cases
  • Evictions
  • Utility shut-offs

After months – or possibly years – of dodging collectors and feeling stress, you can imagine how beneficial it can be to have the collection activity stop when you file your bankruptcy case. You also should not pay your dischargeable past-due debts during bankruptcy, so this gives you a financial break almost immediately.

Discharge of Your Debts

The ultimate goal of a Chapter 7 bankruptcy case is the discharge of your qualified debts by the bankruptcy court. A discharge means that you will no longer have the legal obligation under your credit contract to repay the remaining balances on the debts in question. This allows you to emerge from the bankruptcy process with a relatively clean financial slate. If you do have debts left over that were not dischargeable, eliminating your other payments should free up the funds to stay current on your remaining payments. 

Some examples of debts that the bankruptcy court might discharge include:

  • Medical bills
  • Benefit overpayments
  • Credit card balances 
  • Personal unsecured loans (from banks or friends/family)
  • Some old tax debts
  • Most civil judgments
  • Past-due rent and utilities

With your qualified unsecured debts discharged, you can better cover your remaining debts. Just because not every debt will be discharged does not mean that bankruptcy will not be beneficial to your situation. 

Speak with a California Bankruptcy Lawyer About How a Case Might Help You

While bankruptcy certainly has significant advantages, there are also some drawbacks to consider. You can discuss these with an attorney as well, and then together, you can weigh the pros and cons to make the best-informed decision. At Miranda, Magden & Miranda, LLP, we help clients throughout the bankruptcy process. Contact us for a consultation and to learn about how bankruptcy might be advantageous for you and your household. 

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