Bankruptcy can give you a fresh financial start on life and can seem very attractive to people who cannot afford to pay their bills as they become due. However, the process is not for everyone. Timing of the bankruptcy filing is very important. Filing for bankruptcy may affect your credit for years to come or have other serious consequences that you will need to consider.

You may wish to consult a lawyer to assess the pros and cons of filing in your particular situation. Perhaps you will be able to work out a debt repayment plan on your own. Possibly you will do best to get help from consumer credit counseling services. Or perhaps bankruptcy will be your best solution later on down the road, but not necessarily at this time. Whatever route you take, you will need to gather some basic information before proceeding further. Many attorneys will give a free consultation to discuss the benefits and risks of a bankruptcy and what alternatives to bankruptcy are available.

What are your total living expenses? Calculate the total monthly expenses for you and your dependents such as food, housing, utilities, transportation, insurance, clothing, medical care and some reasonable reserve for the unexpected. You will need an accurate list of these monthly expenses as well as a list of your total monthly income.

Whom do you owe money to? Make a list of all of your creditors. Identify those creditors you have pledged property to, the value of the property your creditors have an interest in and the monthly payments that you currently owe each creditor, as well.

Are you "judgment-proof?" When a creditor sues you they are seeking a "judgment" which is simply a legal order that you owe the debt. Armed with a judgment, a creditor can garnish bank accounts or wages or file liens against your property. You may be judgment-proof if you only have a few assets and they are not worth much; if your only income is from unemployment insurance, Supplemental Security Income or some other type of government benefits; or if you work and your wages are low enough. The effect of being judgment-proof is that creditors may not bother to sue you because they will not be able to "satisfy" their judgments against you. Creditors cannot take any property or garnish the income of a person who is truly judgment-proof. However, even judgment-proof people can and do file for bankruptcy relief – perhaps to stop harassing phone calls.

If your debts were erased, would your financial problems be over? Bankruptcy will give you a fresh financial start and will work best if you will have an income after the bankruptcy that is adequate to support you and your family. On the other hand, bankruptcy will only be a temporary "fix" if you go right back into debt again with no way of paying off the new debts. Chapter 7 is only available once every eight years. It is usually best to wait until you have reached the end of your financial problems before filing bankruptcy. Even if you have filed a previous bankruptcy, the court may allow you to file a Chapter 13 bankruptcy to deal with any new debts you may have incurred; however, this depends on the particular circumstances of your case.

Filing for personal bankruptcy under Chapter 7 and Chapter 13 will stop creditor harassment and will generally stop wage garnishments, depending on the reason for wage garnishment. For example, if your wage is garnished because you have to pay child support or criminal restitution, that wage garnishment will continue. However, if your wage is being garnished to pay an unsecured debt, like a credit card, the wage garnishment will cease.

What is creditor harassment ?

Creditor harassment is an excessive quantity of pressure from a creditor or debt collector to pay a debt. It may involve threats of violence, threats to embarrass the debtor, false information, excessive number of telephone calls or home visits or general nastiness.

Section 60 of the Trade Practices Act 1974 states: "A corporation shall not use physical force or undue harassment or coercion in connection with the supply or possible supply of goods or services to a consumer or the payment for goods or services by a consumer."

Debt collectors cannot harass, oppress or abuse any person. They also can't use unfair practices or make false statements. Unlawful acts by debt collectors include:

• Falsely implying that he or she is an attorney or government representative.
• Falsely implying that you have committed a crime.
• Indicating that correspondence they send you is from an attorney when it is not.
• Implying that nonpayment of any debt will result in loss of personal property, wages, or that you will be arrested unless (a) it is lawful and (b) the creditor intends to follow through with such action.
• Threatening to take action that is not legal or that the creditor does not intend to take.
• Implying that the transfer of interest in the debt to someone else will result in loss of personal property or wages, or that you will be arrested.
• Falsely representing that you committed a crime in an effort to disgrace you.
• Misrepresenting your credit or failing to communicate that you are disputing a debt.
• Using written communication which simulates or is falsely represented to be a document authorized, issued or approved by any court, official or agency of the U.S. or any state, or which creates a false impression as to its source, authorization, or approval.
• Contacting you by post card.
• Using any false or deceptive means to attempt to collect a debt or obtain information about a consumer.
• Failing to disclose clearly in all communication that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.
• Falsely implying that accounts have been turned over to innocent purchasers.
• Falsely implying that documents are part of the legal process when they aren’t.
• Falsely stating that papers being sent to you are not legal process forms when they are. Using any business, company, or organization name other than the actual name of the debt collector's business. Falsely stating that a debt collector is employed by a consumer reporting agency.

Creditor harassment

Whether or not you are currently in bankruptcy, the Fair Debt Collection Practices Act (FDCPA) requires that debt collectors treat you fairly by prohibiting certain methods of debt collection. Personal, family and household debts are all covered under the FDCPA. This includes auto loans, medical care bills and charge accounts. However, business loans are not covered by this law. Paying bills on time is generally the best way to avoid creditor harassment. However, sometimes people fall into financial circumstances that prevent them from being able to honor the debt and they fall behind on the payments.

Most creditors and collection agencies follow the law when attempting to collect a debt. But some don’t, and many times, an abusive creditor is the reason why debtors may feel forced to file for bankruptcy protection—to get the creditor to stop harassing them. You should never allow an abusive bill collector to force you into bankruptcy. However, if your circumstances prevent you from any other action, you still do have legal rights. Once you file for bankruptcy protection, creditors are formally notified you are in bankruptcy, and collection attempts must immediately cease until your case has been discharged or has otherwise decided upon by the courts.

If you have filed for bankruptcy and a debt collector calls, politely tell them that you are in bankruptcy and give them your case number. This usually gets them to stop calling or otherwise attempting to contact you. Some debt collectors persist by asking if you want to re-affirm the debt and they may also make a lot of promises to you if you agree to re-affirm the debt. Beware of any promises, they make. Debt collectors are paid to collect debts, and they will try any means to get you to pay, including making promises the creditor has no intentions of keeping. The best thing to do is to politely but firmly tell them you do not want to re-affirm the debt. If the creditor persists in trying to collect from you, even after you’ve told him or her that you are in bankruptcy and that you are not interested in re-affirming the debt, contact an attorney  immediately for legal advice on your next course of action.

What can I do if I am harassed by a debt collector ?

If you believe you have been unfairly treated, you have the right to sue the collection agency in a state or federal court within one year from the date your rights were violated. You could potentially recover money for any damages you may have suffered as well as court costs and attorney's fees You should also report any problems you have with a debt collector to your state's Attorney General's office and the Federal Trade Commission (FTC). Contact a LawInfo Lead Counsel qualified  bankruptcy lawyer for more information about state and federal debt collection laws and for any legal advice or assistance in your claim.

It is important to realize that bankruptcy does not necessarily allow you to avoid paying back every kind of debt. For public policy reasons, several kinds of debts are specifically excluded from discharge in bankruptcy. The most common debts which cannot be discharged are child support obligations, spousal support, criminal restitution and fines. Some other types of debts are dischargeable in some circumstances but not others – for example, debts from taxes, bad checks and the fraudulent use of a credit card may not be erased. Student loans are sometimes but very rarely discharged, and if they are discharged, it does not happen automatically. The details of your own particular situation should be discussed with a lawyer or other knowledgeable person before you begin bankruptcy proceedings.

Will I have to give up all my property?

Although Chapter 7 is a "liquidation proceeding," you will be allowed to keep certain property, as long as the fair market value of each item does not exceed certain amounts. (Fair market value is not your original purchase price. It is sometimes described as "garage sale value," or how much actual cash you would receive by selling the item to an unrelated party.) Certain property such as your working tools, insurance, household furnishings, radio, television, musical instruments, some savings and checking accounts, your car and your home may be entirely protected, or "exempt," through bankruptcy. For more information on exempt property, contact the Bankruptcy Court or see the Resources panel of this pamphlet for other sources of information. Unlike a Chapter 7 bankruptcy, a Chapter 13 case usually allows you to retain all of your "non-exempt" assets, and over a three- to five-year period of time you pay to the court the value of those non-exempt assets for distribution to your creditors.

Do I have to go to court?

In almost all situations the answer is no. However, in both Chapter 7 and Chapter 13 you have to attend the "Meeting of Creditors" which is usually scheduled about 30 days after you file the case. This meeting is held by the bankruptcy trustee who is the administrator of the process. You will be sworn in under oath, and the meeting will be recorded. Most of the questions will pertain to information in the bankruptcy papers you file with the court. The meeting typically only takes five to ten minutes, and most creditors never come.

How long does the bankruptcy process take?

Once a Chapter 7 bankruptcy is filed, it generally takes three months to complete. However, you are protected from your creditors on the day the bankruptcy is filed – they may not repossess your car, foreclose your house, garnish your accounts or take any other collection activity. If all of your assets are exempt, and no one objects, you will receive your discharge from the debts about 60 days after the meeting of creditors.

Timelines for Chapter 13 are different. Chapter 13 cases run between three to five years depending on the circumstances.

What will happen to my credit rating?

A Chapter 7 bankruptcy case will be reported by credit reporting agencies for ten years. A Chapter 13 bankruptcy case will be reported by credit reporting agencies for seven years. Creditors are sometimes willing to approve credit after bankruptcy because they know that a financial burden has been lifted and that you may now be able to make regular payments on any new debt. Also, they know that if you filed a Chapter 7 proceeding, you will not be able to declare Chapter 7 bankruptcy again for eight more years, so in some ways you are a better credit risk after filing bankruptcy. If you have completed a Chapter 13 plan, then you have demonstrated that you can handle regular payments on your debt obligations. Keep in mind that credit is a privilege, not a right, and some creditors will require an extended period of time after bankruptcy before extending further credit. This is certainly one reason to be cautious about filing bankruptcy.

Do I need a lawyer to file a bankruptcy case?

The law does not require individuals and sole proprietors to hire a lawyer. However, you may want to consult a lawyer to make sure that bankruptcy is the best option for you at this time, and if so, that you are taking the correct steps to file.

Changes to bankruptcy effective October 17, 2005

On October 17, 2005, Congress significantly changed bankruptcy laws and procedure. Make sure any information or forms you possess have been updated to take into account these changes. The following are some of the most significant changes under the new law: