To understand the “do nothing” option and to consider whether it is a viable choice, one must understand a little about collections law—that is, how does a judgment creditor go about collecting money owed.
Typically, collection begins with “informal” efforts against the debtor. These efforts include a barrage of telephone calls, letters, contacting others, such as employers, family members, and friends. If these efforts fail, the lender will likely file a lawsuit. When that occurs, the debtor will be faced with the choice of defending the case or defaulting. Defending the lawsuit will require money – and lots of it. Defaulting will result in a judgment being entered roughly 60 days later.
Once the creditor obtains a judgment against the debtor, a judgment lien will be filed, which attaches automatically to any real estate that the debtor owns in the county in which the judgment is docketed – this applies to all property the debtor owns at the time or may acquire in the future! In addition, a creditor can have a sheriff’s deputy “execute” or “levy” on certain personal property – including bank accounts, investment accounts, vehicles, motorcycles, boats, etc. If the attached asset is cash or funds from a bank account, the money will be handed over to the creditor. If the item is a vehicle, boat, or other non-monetary asset, the property will be sold at a public auction and the net proceeds delivered to the creditor up to the full amount of the debt owing.
In most states, a debtor is allowed to exempt a limited amount of property. For example, in California, a debtor is allowed to claim a homestead exemption in his/her primary residence. The amount of the homestead depends on several factors, including one’s age and how title is held. With a few other exceptions, however, most property owned by the debtor is subject to levy and/or attachment. To be sure, there is little to no warning that an attachment order and usually the seizure of the assets comes as a complete surprise to the debtor. For instance, when the debtor try to withdraw some cash from an ATM and leans that his bank account has been wiped or when the debtor gets ready to leave for work and sees that her can has been taken. Ouch!
The debtor’s income is also at risk. The creditor can obtain a garnishment order so that a large amount of money will be taken directly from the debtor’s pay-check pay period. Having one’s pay-check cut by a third with no prior warning can create some serious problems when it comes to paying rent, a mortgage, a car or food for the family.
Bankruptcy will stop ALL collection efforts in their tracks. Once the debtor has filed a voluntary bankruptcy petition, creditors are prohibited by federal law from taking any further collection actions. No wage garnishments, no levies, no attachments of bank accounts. Creditors are even prohibited from contacting the debtor by phone or mail. Depending upon the nature of the debt/judgment, the odds are high that the entire obligation will be wiped out and discharged by the bankruptcy. There is no doubt that for most people facing a debt problem, bankruptcy will save the debtor significant money, return peace-of-mind, and help avoid a surprise attack by the creditor. Filing bankruptcy may also eliminate judgment liens against real and personal property.
The “do nothing” option rarely works out well for the debtor. Ignoring a financial problem does not make the problem go away. When the alternative is to do nothing, bankruptcy is the far more responsible way of handing a debt problem. For yourself and your family, you deserve to get out of debt and to have an opportunity to begin building a better financial future. Call us today to arrange a free confidential consultation with an experienced attorney to discuss the pros and cons of filing bankruptcy.
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