Whether in the form of student loans, medical bills, credit cards, or mortgages, most people have a debt of some kind. As explained by our friends at Warren & Migliaccio, L.L.P., in 2021, the average amount of personal debt in America was over $90,000. When debt is piling up faster than you can pay it off, debt collectors may begin contacting you. Phone calls and letters from collection companies and creditors often worsen the problem, adding extra stress to an already challenging situation.
The Fair Debt Collection Practices Act (FDCPA) is a federal law that places regulations on creditor behavior and how they interact with consumers. It is intended to make communication with debt collectors less intimidating and threatening. However, even with the FDCPA requirements in place, dealing with creditors is not an enjoyable experience. When your debt becomes overwhelming, and there is little hope that you can repay it, bankruptcy may be the best option.
How Bankruptcy Helps Immediately
The two most common types of personal bankruptcy for individuals are Chapter 7 and Chapter 13. These allow you to discharge unsecured debts and prevent further debt-collector activity. While the details of how this process works will vary significantly based on the type of bankruptcy you file, both Chapter 7 and Chapter 13 filing initiates an automatic stay of collection action.
This means that all communication from creditors will stop, allowing you a temporary reprieve from harassment. Further, the automatic stay puts a hold on any garnishments, repossessions, or foreclosures throughout the duration of the bankruptcy process. This can be a powerful tool for those dealing with multiple creditor and collection actions.
How Bankruptcy Can Help Long-Term
What happens when your bankruptcy is finalized, and the automatic stay expires? Because bankruptcy allows you to discharge your debt or create a manageable repayment plan, creditors will likely not harass you after filing for bankruptcy. While bankruptcy is not intended to be an easy fix or fast solution to debt, it does serve the purpose of helping consumers get back on track financially or get a fresh start.
Filing for Chapter 7 bankruptcy means liquidating your nonexempt assets and discharging unsecured debts. This type of bankruptcy is reserved for those debtors who meet specific financial requirements, including having an income that is less than 150% of the poverty level. Chapter 13 involves restructuring debt into a more manageable repayment plan approved by the bankruptcy court. Debtors who file Chapter 13 must submit their repayment plan for court approval within 14 days of filing the bankruptcy petition. If you are would like to know more about your different options, a qualified Chapter 7 & Chapter 13 bankruptcy lawyer will be able to help you determine what your options are.
Whether you qualify for Chapter 7 or Chapter 13 bankruptcy, filing should provide both temporary and long-term relief from creditor harassment.