Is Bankruptcy Worse Than A Garnishment?
Richard Fonfrias, J.D.
Chicago's Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC
If you are in serious debt and have reached the point where you must choose between bankruptcy and wage garnishment, you need accurate information. Here are facts to consider:
Chapter 7 Bankruptcy or Wage Garnishment
A Chapter 7 bankruptcy - where your non-exempt assets are sold and your debts are erased - is often better than having your wages garnished.
Chapter 7 bankruptcy eliminates most debts, often including the money owed to the creditor that is garnishing your wages. So, instead of the creditor taking part of your earnings until you pay your debt in full, a Chapter 7 bankruptcy could erase the debt completely with the creditor getting nothing. However, not all debts can be discharged in bankruptcy. These include child support, alimony, student loans and some tax debts, among others.
Also, you can often keep your assets because Illinois deems certain property "exempt" from sale. So, by filing for Chapter 7 bankruptcy in Illinois, you could discover that you erased your debts and got to keep your assets as well.
Chapter 13 Bankruptcy or Wage Garnishment
In a way, Chapter 13 bankruptcy is similar to garnishing your wages. When your wages are garnished, the creditor takes part of your earnings until you pay your bill in full. In a Chapter 13 bankruptcy, you must pay a fixed amount every month to creditors until specific debts are paid off. Here's the difference:
In some cases, wage garnishment can take as much as half of your wages. But a Chapter 13 bankruptcy requires you to pay only the amount the court trustee sees that you can afford. And in both a Chapter 13 bankruptcy and a garnishment, your property cannot be seized and sold. If the trustee reviews your income and agrees that you cannot afford a large payment, your payment to the bankruptcy court could be surprisingly low. So in this way, a Chapter 13 bankruptcy could be a much better option than having your wages garnished.
How Your Credit Score Is Affected
Before a creditor garnishes your wages, your debt has probably gone to collection. According to credit bureaus, a collection account is almost as harmful to your credit score as a bankruptcy because both show that you failed to pay creditors. This failure determines 35 percent of your credit score, the largest single factor considered.
How Your Credit Report Is Affected
Both Chapter 13 bankruptcy and wage garnishment stay on your credit report for seven years. A Chapter 7 bankruptcy remains on your credit report for ten years, so Chapter 7 is less desirable than either of the others.
In Many Cases, Bankruptcy Improves Your Credit Rating By the time you consider bankruptcy, you may have already had a lawsuit filed against you. Or, you may have had a vehicle repossessed or defaulted on other obligations. At this point, your credit rating is nearly as low as it can go. By filing bankruptcy, you stop all collection efforts and lawsuits dead in their tracks.
Within one year of your bankruptcy, FHA, VA, HUD and other highly regarded creditors and guarantors will consider you for a new mortgage. Not surprisingly, you won't get the lowest possible interest rate, but it should be affordable. And as the months pass, lenders pay less attention to your bankruptcy and consider, instead, whether you have reliable income and whether you pay your bills on time.
Here's why you should start to establish new credit: Your credit score and report will remain at the level of bankruptcy until you take positive steps to improve them. So the sooner you act, the sooner your credit will improve. And in this way, a bankruptcy can be a big help in turning your life around and giving you the fresh start guaranteed by the founding fathers in the U.S. Constitution.
This information is provided as service by Richard Fonfrias of the Fonfrias Law Group to assist those struggling with serious debt problems in Illinois. As a well-respected Chicago bankruptcy lawyer and financial rescue expert, Rich has years of experience helping people in financial distress find a solution to their problems with creditors and improve their family finances. As well as successfully guiding thousands of clients through the bankruptcy process, Rich also provides many other types of financial legal services including bankruptcy repair, bankruptcy avoidance, foreclosure avoidance, loan modification services, mortgage repair, credit repair, tax reduction and tax lien services. One of the top bankruptcy lawyers in Chicago, Rich Fonfrias works with clients to find the best solution to their money problems.