Breathe: Understanding Protections Under BankruptcyUpdated May 10, 2016 Bankruptcy
Bankruptcy often seems like a dark spot on your credit history, but it can actually shed some positive light on your financial situation by offering protections against creditors, discrimination and foreclosures. If you feel like you’re running from collections agencies or are afraid that filing for bankruptcy will impact your work, there’s no reason to be afraid. The bankruptcy process provides you with protections that are meant to offer you comfort during legal proceedings so that you can focus on doing what’s best for your financial future without worry about the now. So, take a deep breath and learn about how the courts will help you through.
Understanding the Automatic Stay
The most important bankruptcy protection is the automatic stay, and it’s a necessity for many people hiding from collections agencies. The moment you file for bankruptcy, you’ll be granted several protections through what’s called an automatic stay. This is a legal injunction (a stop) that notifies collectors and lenders that you’ve filed for bankruptcy and can’t be harassed about unpaid debts. This means that creditors, lenders, bill collectors and collections agencies can’t contact you and ask you to make payments during your bankruptcy proceedings. An automatic stay also bars these collectors from foreclosing on your home, repossessing property like a vehicle, or garnishing your wages. The only time a creditor or lender can continue to contact you about these debts is if you choose to file pro se bankruptcy (representing yourself) and they need to gather more information about your case, just as they would with your attorney, or if you forget to mention the debt you owe them in your bankruptcy petition. But, an automatic stay isn’t the only help you’re offered.
Exemptions Can Protect Your Personal Items
If you choose to file chapter 7 bankruptcy, you may be worried about facing liquidation: when your personal property and items are sold to cover the costs of your debt. A common bankruptcy misconception is that you’ll lose “everything” with a chapter 7 bankruptcy, but exemptions work in your favor to help you hold on to things you need on a day-to-day basis, such as a home or vehicle. A court trustee and your lawyer can help you determine which exemptions you qualify for, but in many cases what you’re allowed to claim (and its monetary value) depends on what state you live in. Cars, for example, can be kept so long as they don’t exceed a certain value defined by your state. Personal items like family mementos and heirlooms can also be kept through exemptions, though you should note a court trustee is likely only going to sell items that would make enough money to put a dent in your debt. Exemptions are a great way to hold onto things you’re afraid of losing, but also ensuring you have a strong start after bankruptcy with a place to live and a way to get to work.
Check Your Eligibility
There’s Protections Against Discrimination, Too
Some people worry that they’ll lose their job if an employer finds out they’ve filed for bankruptcy. Luckily, bankruptcy courts provide you with protections against workplace discrimination, too. An employer cannot fire you because of your personal financial situation, regardless of the details of your bankruptcy case (such as how much you owe or to whom) or how they found out. You should know that bankruptcy cases are considered public information, and it’s possible for friends, family or employers to find out about your bankruptcy. But, that doesn’t mean a bulletin will be posted in the town square! Most people will only know about your bankruptcy if you tell them. If you feel that an employer has discovered your case and discriminated against you because of it, you have the legal right to take them to court on workplace discrimination charges.
Working through bankruptcy is tough, but having a few tools to help you through can feel like a lifesaver. The idea of bankruptcy is to start fresh, and these protections give you the chance to make good on that concept without worry.