I had a gentleman in my office the other day for a consultation. He had made some bad investments which never came to fruition. During the years that he waited on his jackpot, he ran up several credit cards. The plan, of course, was to pay off the credit cards once his investments made it big. He had finally come to terms with the reality that his investments were never going to pay off, but he didn’t know how he was going to pay off his credit card debt.
Just for some context, this gentleman was 75 years old, owned no real estate, and his only source of income was real estate. He was still current on his credit card payments, but he could see the writing on the wall. He simply wasn’t going to be able to keep paying all of his bills as long as he had the credit card debt. He had been researching bankruptcy and was fairly convinced it was his best option.
The main purpose of a bankruptcy consultation is to get a good look at a potential client’s full financial picture to see if bankruptcy is really their best option. Sometimes there are other options especially if, like this gentleman, they are “judgment proof.”
When a creditor sues you and wins, the court enters judgment against you. That judgment allows the creditor to do a few things, including: recording the judgment which places a lien on any real estate you own; garnishing your wages, and; garnishing your bank account. If you don’t own any real estate, then you don’t have to worry about a lien being filed. Also, a creditor can’t garnish exempt funds. Specifically, creditors can not garnish social security payments.
The bottom line was that even if creditors had judgment against this gentleman, there was little they could do. He owned no real estate and he had no money they could have.
Nevertheless, there may be another reason for bankruptcy: peace of mind. Bankruptcy will stop phone calls and law suits from creditors. He won’t have them harassing him for money he doesn’t have. He’ll need to weigh that peace of mind against the costs of bankruptcy and decide which is the better path.
If you’re thinking about bankruptcy, but find you’re in similar circumstances as this gentleman, consider sitting down with a bankruptcy attorney for a consultation. Even if you decide that bankruptcy is not a good option for you, you’ll get a better understanding of how the process works and how creditors may proceed if you stop paying them without filing bankruptcy.