Bankruptcy is a powerful legal tool that can free you from responsibility for most, if not all, your debts. While effective, it's not always necessary to use what amounts to the nuclear option to deal with your finances. Here are two reasons why you may not need to file bankruptcy even if your creditors make feel like you do.
You're Judgment Proof
Possibly the top reason people may not need bankruptcy protection is they are judgment proof. This means they have nothing creditors can take to pay the debts. Generally, bill collectors can sue people in court or use other legal tools to garnish their wages, take money out of the bank accounts, or put liens on or even repossess property (e.g. homes, cars) the debtors own. If none of these options apply to you, then your creditors can't touch you.
You can determine whether you're judgment proof if:
- All of your income (e.g. Social Security, child support, some retirement benefits) is exempt from money judgments
- You don't have a bank account or all your exempt money goes into it
- You don't own non-exempt property that can be seized or have a lien placed on it
- You have a very low-income job
It's important to note you won't be judgment proof to all creditors or at all times. Some creditors (e.g. the government) and some debts (e.g. child support) still have access to protected sources of income. For instance, the government can take your Social Security benefits to pay your student loans even though your credit card bank can't garnish those funds.
Additionally, creditors have several years where they can attempt to collect on a debt. In Minnesota, for example, a creditor who is granted a judgment against you has 10 years to collect the money and that judgment can be renewed. Unless you expect to be judgment proof that entire time, you'll need to figure out some way to handle the debt.
You Don't Legally Owe the Debt
Another reason bankruptcy may not be necessary is the debt collectors are trying to get you to pay debts you don't legally owe. This can happen in a multitude of ways, with the most common being creditors pursuing debts where the statute of limitations has passed. Creditors in Kansas have a maximum of 3 years to use all legal means to secure payment from you, for example. Unless they get court judgments against you, they can't continue to hound you for the debt. Another common tactic is to try to hold one person liable for an ex-spouse's debt, even though he or she had nothing to do with it or the ex-spouse was legally ordered to be responsible for it.
Unfortunately, many people don't know their rights in this area and fall for debt collectors' tricks. It's important you consult with a debt specialist or attorney, like Dennis Lee Burman Attorney at Law, before taking any action debts you're not sure you even owe. For more information about these issues or help dealing with creditors, contact an attorney.