Bankruptcy May Again Be an Option for Consumers in the Coming Months
Author: Attorney Thomas J. Casey
Although bankruptcy filings decreased during the last year or so by about 45%, it is likely that 2022 will bring an increase in consumer bankruptcies across the county. As inflation increases, making it more difficult for the average person to cover their ordinary living expenses, it is anticipated that more and more people will find themselves unable to pay their debts in the coming months.
Many creditors have significant interest charges once payments become delinquent, making it even more difficult to keep up. Credit cards currently carry an average interest rate of 16.2% even before payments become delinquent. After payments are delinquent, the interest rates often rise to 30% or higher.
For those consumers who find themselves unable to pay their debts as they come due, Chapter 7 bankruptcy may be an option. Filing a Chapter 7 bankruptcy stops any collection activity on all debts as creditors are prohibited from taking any further action once the bankruptcy is filed. This is very helpful to any consumers who are employed, as creditors are unable to proceed with taking judgments and commencing earnings garnishment actions. The bankruptcy stops any pending garnishments and could possibly return any monies garnished within the 90 day period just prior to filing the bankruptcy to debtor. This could be a significant amount of money as a garnishment takes 20% of the debtor’s take-home pay each pay period. A person making approximately $40,000.00 a year would lose about $100.00 per week to an earning garnishment, or up to $1,200.00 in the 90 days before filing.
A Chapter 7 bankruptcy results in the discharge of any unsecured debts even if those debts were reduced to a money judgment prior to filing the bankruptcy. Any existing judgments on debts which are discharged in the bankruptcy can be satisfied after the bankruptcy is completed by filing the appropriate paperwork with the State Court where the bankruptcy is recorded.
In summary, in the coming months as inflation and other economic factors make it difficult for people to pay their debts on time, it is prudent to explore all alternatives including a Chapter 7 bankruptcy. Even those whose paychecks have been garnished may have the ability to not only stop the garnishment but to recover any monies taken within the preceding 90 days.