20 Extraordinary Tools of Bankruptcy
In so many often surprising ways, bankruptcy can fix your earlier mistakes, undo harms caused by creditors, and clear a better path forward.
The last 20 blog posts have been about the powerful tools available to you if you file either a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts.” It’s worth seeing these tools all listed in a row. These are just a sampling of the ways that a bankruptcy filing can turn your financial life around. You won’t use all the available tools, but this list gives you an idea of how deeply and widely a bankruptcy could help you.
1. The “Automatic Stay”
Filing bankruptcy quickly and thoroughly protects you, your money, and everything else you own.
2. Use “Preference” Law in Your Favor
Not only does filing bankruptcy stop creditors’ present and future collection efforts against you, it could even recoup money you’ve already lost.
3. Prevent “Preference” Law from Hurting Your Friendly Creditors
Avoid the rude surprise of hurting the friend, relative or other favored creditor you paid before filing bankruptcy.
4. “Avoid” Judgment Liens
Bankruptcy can undo bad things that a creditor has done to you, like a judgment lien on your home.
5. Reinstate Your Driver’s License from Failing to Pay a Judgment
Bankruptcy can get your license back for failing to pay a debt and the resulting judgment from a motor vehicle accident that happened while driving uninsured.
6. Reinstate Your Driver’s License from Failing to Pay Tickets
Bankruptcy can get your license back for failing to pay traffic tickets as long as the local law treats them as civil infractions and not as criminal fines.
7. Get Back Your Just-Repossessed Vehicle
You can often get your vehicle back, depending on how long ago it was repossessed and whether you file under Chapter 7 or Chapter 13.
8. Get Out of an Unaffordable Installment Plan with the IRS
Chapter 13 can save you if you can’t afford your current IRS monthly payment plan, or are being forced to break it because of the upcoming new year of taxes due.
9. Cancel All (Or Almost All) Garnishments
Most garnishments are stopped immediately if you file bankruptcy, as long as you file your case in time.
10. Prevent Garnishments from Resuming after Being Stopped
A garnishment can be restarted later if the underlying debt will not get discharged in bankruptcy—such as child/spousal support arrearage, recent income taxes, student loans, and debts incurred through fraud. With these, extra steps need to be taken to solve the problem permanently.
11. Recover Money after It’s Garnished
If you lost money through garnishment during the 90 days before filing bankruptcy, that money may be returned, either to you or to a creditor that you want or need to get paid.
12. Prevent a Wage Garnishment after Your Bankruptcy is Filed
Very limited kinds of paycheck garnishments can continue—for ongoing monthly child and spousal support, for example. But in almost all other situations, the creditor can be seriously penalized for continuing to garnish once they know about the bankruptcy filing. So creditors seldom do so intentionally.
13. Prevent an Income Tax Lien, or Reduce Its Damage
Bankruptcy can prevent a tax lien from being recorded. But even if one is recorded before you file, Chapter 13 can particularly help stop it from hurting you.
14. Stop Being Hurt by an Income Tax Lien on Taxes that Can’t Be Discharged
Chapter 13 minimizes the effect of a tax lien on older, dischargeable tax debts, but also on newer taxes that can’t be discharged.
15. Avoid Paying Your Ex-Spouse Most of Your Property Settlement Debts
Chapter 13’s “super discharge” means that you can write off a portion of any non-support debts included in your divorce decree.
16. Rewrite the Payment Terms of Your Vehicle Loan with “Cramdown”
If your vehicle loan is more than two and a half years old, you may well be able to lower both your monthly payment and the total amount you pay on the loan.
17. Get Out of Your Vehicle Lease through Chapter 7
A lease can cost you less up front and monthly, but in fact is often the most expensive option. Chapter 7 bankruptcy is your most straightforward way to escape that high expense.
18. Get Out of Your Vehicle Lease through Chapter 13
While Chapter 7 gets you out of a vehicle lease cleanly, if you have to file a Chapter 13 case for other reasons, that can work, too.
19. Keep Your Leased Vehicle through Chapter 7
If you are current on your leased vehicle, you can likely keep it in a Chapter 7 “straight bankruptcy.”
20. Keep Your Leased Vehicle through Chapter 13
If you are not current on your leased vehicle but want to keep it, and you can’t bring the account current right away, file a Chapter 13 case.