Bankruptcy offers immediate relief against civil judgments. Judgments allow creditors and bill collectors to possibly garnish your wages and bank account as they attempt to collect from you on an unpaid debt, such as a credit card. However, filing for bankruptcy ends the threat by forcing creditors to end all collection efforts while the bankruptcy court reviews your finances.
The Automatic Stay
Once you file for bankruptcy, the judge will issue a legal notice called an "automatic stay." All of your creditors---including those holding judgments against you---are notified that the bankruptcy court is protecting you and that collection efforts must be halted.
Types of Bankruptcy
Chapter 7 and Chapter 13 are the two most popular forms of personal bankruptcy, according to the Federal Trade Commission. Chapter 7 is the simplest of the two and can completely eliminate credit card judgments and other unsecured debt in just months. However, there are income limits for Chapter 7 that vary by the state, and generally only those with low incomes qualify. Others can choose Chapter 13, which requires a payment plan over four years. That means Chapter 13 may provide only partial relief for a judgment.
Bankruptcy Counseling
You must take a pre-bankruptcy counseling session before officially filing for bankruptcy. Federal bankruptcy law requires you to obtain a certificate of completion indicating that you have been officially briefed on the pros and cons of bankruptcy. Pre-bankruptcy counseling is conducted by credit counseling agencies certified by the U.S. Justice Department's U.S. Trustee Program. The agencies are located in cities across the country.
Bankruptcy Fees
The fee for filing for Chapter 7 bankruptcy is $299, while Chapter 13 costs $274, according to the U.S. Courts website in 2011. The fees do not include attorney costs. You can file bankruptcy without an attorney, but the process is complex and can be overwhelming for those without experience.
Credit Score
Filing bankruptcy to relieve a judgment may solve one problem---the judgment---but create a much larger issue. The bankruptcy information will be listed on your credit report for at least 10 years, and will cause your credit score to drop significantly when you first file. Credit may still be possible as you recover from the bankruptcy, but at higher interest rates.
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