Bankruptcy May Be A Solution To Those Facing Garnishment Or Foreclosure
With the economy the way it is today, many Americans find themselves owing debts that they cannot repay. As a result, many may be facing foreclosure or garnishment of their paychecks. Many people in this situation do not know what to do to get relief from this seemingly impossible situation. Fortunately, bankruptcy offers a solution to these problems for many.
Wage garnishment and bankruptcy
Wage garnishment is an order from a court that requires an employer to withhold a certain amount of money from an employee’s wages to satisfy a debt. In most cases, creditors must go to court and win a lawsuit before a debtor’s wages can be garnished. Bankruptcy can assist debtors who are facing garnishment.
Once a debtor files for bankruptcy, most creditor collection efforts are halted by the automatic stay-including wage garnishments. In other words, creditors are legally prohibited from attempting to collect many types of debts. While the automatic stay is in effect, the debtor’s property is in the hands of the bankruptcy court, which will decide what property the debtor gets to keep, what property the debtor will need to give up and which creditors (if any) will be repaid.
If the debtor files for Chapter 7 bankruptcy, many of the debts will be wiped out, which, in many cases, which will stop creditors’ attempts to garnish the debtor’s wages permanently. In Chapter 13 bankruptcy, the debts that are the subject of garnishment will be put into a repayment plan where the debtor repays some or all of the debt over a three to five year period, in lieu of having his or her wages garnished.
Bankruptcy cannot stop all wage garnishments, however. Garnishment can continue during and after the bankruptcy for debts such as child support. For certain other debts such as back taxes, the automatic stay will only delay garnishment until the bankruptcy process has been completed.
Foreclosures and bankruptcy
Bankruptcy can help debtors facing foreclosure, if only temporarily. Like garnishments, as soon as bankruptcy is filed, the automatic stay bars any attempts to begin, continue or complete a foreclosure. However, what happens next depends on the type of bankruptcy filed.
Although the automatic stay gives the debtor some breathing room to catch up on mortgage payments, or to negotiate a loan modification agreement with the lender, a Chapter 7 bankruptcy does not stop foreclosure entirely. The right to foreclose or repossess collateral that secures a debt (e.g. a mortgage) is not wiped out in bankruptcy. Therefore, if the debtor is not current on his mortgage by the time that the automatic stay is lifted at the end of the bankruptcy, he or she will still face foreclosure.
Chapter 13 bankruptcy, on the other hand, can stop foreclosure proceedings while the homeowner catches up with his or her mortgage. The mortgage arrearages are put into a payment plan where it will be paid off over a long period of time.
Since the payments made under the plan are spread out for a period as long as five years, Chapter 13 bankruptcy can make the payments affordable even for homeowners who are far behind on their payments. As long as the payments are regularly made under the repayment plan, the bank or mortgage company cannot foreclose.
Consult an attorney
Although bankruptcy is a powerful tool, it is not for everyone. Depending on your individual situation, it may or may not be the best option. If you are considering bankruptcy, contact an experienced bankruptcy attorney. An attorney can review your personal situation and recommend a debt relief option that would be right for you.