Should You File Bankruptcy if You are Collection Proof?

This personal bankruptcy story and question was posted on the internet in 2011 in a bankruptcy discussion: “The main reason we are filing is because of a foreclosure on my husband’s old home which has been a rental. Our bank has sent notice to foreclose. My husband’s income cannot be garnished, his name is not on our primary residence and my name is not on any of it…I know an advantage would be that we could “cram down” our vehicle. We do not have a 2nd mortgage, nor do we have any late payments…Would you file if you were judgment proof?”

The debtor in the personal bankruptcy illustration wants to know whether to file or not. She mistakenly thinks there is such a thing as “judgment proof,” but the reality is, the only way you can become judgment proof on a debt is to get the debt discharged through a bankruptcy filing. A discharge means the creditor can never legally try to collect on the debt again. Therefore, in effect, you would be judgment proof from collections on that particular debt or debts.

What the debtor really should have asked is should you file a bankruptcy if you are collection proof? Being collection proof means you do not have any significant assets for a creditor to come after. When you are collection proof, a judgment will not help the creditor because there is nothing for them to get.

If you do have assets, a judgment from a lawsuit is a very powerful tool for a creditor to obtain. It legally enables the creditor to go after your assets by seizing, attaching liens, garnishing wages, or forcing you to give up your assets in a legal manner to satisfy their claim against you. In addition to the amount owed the creditor, judgments often award the creditor interest, some penalties, and some fees. All of these awards depend on which state you live and in which court the judgment was rendered.

Whether or not a you file for bankruptcy is ultimately your decision to make. No one can make the decision for you, but you can make an informed decision by learning about bankruptcy laws or consulting with a bankruptcy lawyer.

If you are truly collection proof and can tolerate the harassment that goes along with collections, it may be unwise to file for bankruptcy unless you have something to protect. After all, bankruptcy is all about protecting your assets.

After you file a bankruptcy, it may be up to 8 years before you can file again. So if you file a bankruptcy without need, you are making yourself vulnerable to creditors that can obtain judgments in the future. Many say the best time to file bankruptcy is when you are seeing the light at the end of the tunnel. That means you have a job, you are beginning to start financial recovery, and you need a fresh new start, free from all the collection activities.

If you determine you are not collection proof and feel the need to file for bankruptcy, contact us here at , and we will help you find a bankruptcy attorney in your area that will help you with any questions you may have on bankruptcy law.

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