Debt collectors are relentless. In order to stop collection activity, Chapter 7 bankruptcy may be your best move.
Creditors have many methods to collect on a debt. Some of these include liens, garnishments, and hiring third party debt collectors to hound you at home, work and everywhere in between. Debt can feel like a heavy burden, but there are ways to stop these practices. One such method is filing for Chapter 7 bankruptcy.
Chapter 7 Bankruptcy Will Immediately Stop Wage & Bank Account Garnishments
Creditors can often win judgments against debtors that enable them to take money directly from a debtors paycheck or bank account. While this sounds like something out of “Minority Report”, it has been a longstanding practice for many years. The rise of technology has made this process even easier for creditors.
When you are struggling, losing even more money from your paycheck can be devastating. And in the current high-inflation economy, it can mean not being able to pay rent or your car loan, putting you further into debt. So how does Chapter 7 bankruptcy help?
Once you file your petition for bankruptcy, your creditors will immediately be subjected to a mandate putting an automatic stay on garnishments and other legal actions they have taken. Any money taken after the petition was filed must be returned to you.
These activities will stay stopped until the conclusion of your case, which for a Chapter 7 bankruptcy s approximately 4 months. Because the debt that caused the garnishment will most likely be discharged, you won’t have to worry about it any longer.
Chapter 7 Bankruptcy Can Remove Debt Liens
Liens are another tool creditors use to collect their debts. Typically, a lien is put on a valuable asset like your home or vehicle. When there is a lien on your property, the creditor can seize the item or have the debt paid as part of the proceeds of the sale. Typically, houses end up in the latter category, but it is not unheard of for a creditor to seize an automobile.
Chapter 7 bankruptcy can help with liens as well. Often, the lien can be stripped from the property, which means that the creditor no longer has a legal claim on the asset and can’t force you to pay the debt out of the proceeds of your sale.
In many other instances, the lien amount can be significantly reduced. For example, if you purchased an RV for $20,000 but you owe a creditor $25,000. You can force your creditor to reduce the lien to the value of the property, which washes away the difference.
Put a Temporary Hold on Repossessions
Debt secured by collateral is the most vulnerable when it comes to collection activity. When a person falls behind on their payments, creditors will take the property securing the debt and sell it to recoup their losses. While it may just be another business transaction for them, it can be a life-changing loss for the debtor.
Luckily, bankruptcy can put a stop to property repossession, at least temporarily. As mentioned before, the automatic stay mandate blocks creditors from performing certain collection actions, and repossessing property is one of them.
The protection only lasts as long as the bankruptcy case is active. However, you can typically get the amount owed on the property reduced or force the bank to refinance the debt to make it more affordable, which can help you achieve solvency long term.