Bankruptcy is a legal process that can provide individuals with a fresh financial start by allowing them to eliminate or reorganize their debts.
One of the key benefits of filing for bankruptcy is the protection it offers from creditors.
Automatic stay
In 2022, 387,721 people filed for bankruptcy according to U.S. Courts, and one of the benefits you receive when you file for bankruptcy is an “automatic stay” issued by the courts. This legal order prohibits creditors from taking any further collection actions against you. Creditors have to immediately stop all efforts to collect on your debts, including phone calls, letters or lawsuits.
Asset protection
Depending on the type of bankruptcy you file, you may be able to protect certain assets from seizure by creditors. Under Chapter 7 bankruptcy, some of your assets may be exempt from liquidation. Chapter 13 bankruptcy usually allows you to keep your assets and set up a repayment plan.
Debt discharge
Bankruptcy can also provide debt relief by discharging or erasing your debts. Under Chapter 7 bankruptcy, your unsecured debts, such as credit card bills and medical expenses, may receive discharges, meaning you are no longer legally obligated to pay them. With Chapter 13 bankruptcy, you can set up a manageable payment plan, often with lower interest rates, to repay your creditors over a specified period.
Protection from lawsuits
Filing for bankruptcy can protect you from creditor lawsuits. Creditors who obtain a judgment against you and attempt to garnish your wages or seize your property have to stop these actions. The automatic stay and the debt discharge process will help you avoid or end creditor lawsuits.
While bankruptcy is a complex and serious legal process, it can be a lifeline for individuals struggling with insurmountable debt.