Bankruptcy is a powerful option for improving one’s finances, but there are alternatives to struggling debtors. Some cater to homeowners, like short-selling, refinancing, or offering the deed in lieu of foreclosure. Others are oriented to debtors generally, like advice for tightening up one’s finances. However, these don’t quite answer the question of when doing nothing about a debt is the best option. The candid answer from this New York bankruptcy lawyer is there are some such situations, but they come with their own risks.
Note that choosing not to do anything, including bankruptcy, is not the same as when debtors cannot file bankruptcy because it can’t address their financial problems. I’m talking about when bankruptcy or other options could successfully address people’s debts, but they choose not to take those roads. Essentially, it means debtors are permitting their creditors to take whatever collections efforts they want so long as they’re legal.
A creditors might not go to the effort of suing a debtor to recover a debt, but often it will. The creditor will go to civil court, obtain a judgment, and then the government will enforce it by attaching a judgment lien to the debtor’s assets. Its agents then foreclose or execute levies on the debtor’s properties, auction them off, and then hand the proceeds to the creditor.
Thus, debtors who happen to have some assets, especially real estate, can lose them to repay their creditors. If this is a likely outcome of disputes with creditors, then debtors are advised to not do nothing. Just about any alternative is going to lead to a better result. Defaulting on debts will seriously penalize a credit score, and bankruptcy can protect some amount of property through exemptions. I should add that New York State allows debtors to keep significant assets from creditors enforcing judgments, and these protections mirror New York’s bankruptcy exemptions.
Okay, so what happens to a debtor who has no assets to auction or exempt? Then the creditor will turn to his or her wages. The creditor’s lawyers go to court and ask the judge to order the debtor’s employer to withhold (garnish) some of the debtor’s income to pay for the debts. Wage garnishment frequently comes up in child support situations, but it can play a role when the creditor is not a parent.
Here too, though, there are some incomes creditors can’t get at, like Social Security income. So debtors who have nothing and are living on a government income can probably not bother with their creditors—or bankruptcy. The only thing these debtors need to worry about is the collections calls, which will go on until debtors stop them. One way of doing so is by asserting one’s rights under the Fair Debt Collections Practices Act (FDCPA), which is enforced by the Federal Trade Commission. Resources for that are here.
There are some debtors for whom bankruptcy isn’t feasible or even affordable. However, many people are better off trying to obtain a fresh start from their debts than doing nothing. If that describes your situation, then talking to an experienced New York bankruptcy lawyer can help you assess your options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy lawyer Brooklyn NY Bruce Weiner for a free initial consultation.
