The answer to that question is different for each person that I speak with. The short answer is to protect your assets. Most people don’t look at bankruptcy as a way to keep what they need but as a way to get rid of what the don’t want – debt. However, I look at what you have that needs protection. For a lot of people, their biggest asset is their job and the wages they get from their job. If you have debt that you can’t pay, the creditors can file a lawsuit against you, obtain a judgment, and garnish your wages. This means that 25% of your paycheck could be going to a single creditor. Very few people can pay their living expenses if 25% of their paycheck is going to a single creditor. Filing bankruptcy allows you to protect your paycheck from garnishment.
What if you get behind on your car note? Do you consider your car an asset? Of course it is, and a very necessary asset if you live in an area where you have to have a car to get to work. Filing bankruptcy allows you to propose a plan to catch up your car note while keeping your car. Very few creditors will work with you to allow you to catch up your car note and if they do, it is actually by making you pay more per month to catch up on the amounts you are behind on your note. Fortunately, filing bankruptcy usually allows you to lower your monthly car payment so that you can afford to keep this very necessary asset.
Do you own a house? Almost everybody would say their house is an asset. Filing bankruptcy allows you to keep that asset if you get behind by proposing a plan to repay the amount you are behind. Filing bankruptcy also allows you to stop any foreclosure actions that may have been started against your property.
There are many other reasons to file bankruptcy that I will review in future posts, but these are the most common reasons to file bankruptcy and the ones that spur most people into taking the action to file bankruptcy.