There are many ways that filing for bankruptcy protection can help with creditors whether you file under Chapter 7 or Chapter 13 of the Bankrutpcy Code. After you have prepared and filed your bankruptcy paperwork, the court clerk will notify all of your creditors of your bankruptcy filing and inform them that they may no longer contact you. The clerk’s notice will also include information about your meeting of creditors. If your creditors continue to pursue you after receiving notice of your bankruptcy, they are subject to sanctions by the bankruptcy court. Not only does the bankruptcy filing stop the creditors from calling or contacting you, it stops them from suing you or continuing with any pending lawsuit; wage garnishment; or even bank levies are stopped.
When dealing with unsecured creditors and when efforts to pay off high interest rate credit card debt fails, bankruptcy stops any interest from accruing on this type of debt. This means that under Chapter 13 of the Bankruptcy Code where debtors make a court ordered payment on the debts owed, this repayment plan has zero interest. This brings financial stability to the household budget with an end in sight for freedom from debt.
Bankruptcy can also protect against paying debts not owed or zombie debts that have lingered long past their expiration dates. Bankruptcy also helps clean up identity theft more quickly than just about any other method. I know that identity theft is not the borrower’s fault, but clearing up the bad debt off the credit report and then filing an explanation to the credit bureaus may help that credit score rebound faster than a rebound relationship would last.
My favorite bankruptcy benefit? All debts discharged in bankruptcy incur NO TAXES. That’s right. No income taxes will be owed on debts discharged in bankruptcy. This makes bankruptcy more favorable than debt repayment plans, or debt settlements outside bankruptcy. As always, I recommend a consultation with your tax professional, and bankruptcy attorney to be sure bankruptcy is right for you.