Filing for bankruptcy

Dear Dr. Don,
Is there anything a creditor can do if you inform them that you are going to file for bankruptcy? I intend to, but have not filed yet. I have to get the filing fee saved up. Can they garnish my checking account and, if so, how many months do I have to be behind in my payments? Thanks. -- Marjorie Marsh

Dear Dr. Don,
How does one go about filing a bankruptcy when you don't have $700 to $800 to pay an attorney? I have been with a credit counselor and had to stop because I could not find work. That threw all my bills behind again, and now I have increased medical bills. I am working temporarily now, but due to illness I am sinking. Thanks. -- Marie Mire

Dear Marjorie and Marie,
Letting a creditor know that you plan on filing for bankruptcy is a wake-up call to the creditor telling him to move quickly before a bankruptcy court takes control of how and whether your debts are repaid.

The act of filing for bankruptcy triggers an automatic stay that immediately stops any lawsuit filed against you and prevents most actions against your property by a creditor, collection agency or government. Filing for bankruptcy stops the threat of garnishments.

With a Chapter 7 bankruptcy filing (liquidation), the court will discharge your debts by paying creditors from the proceeds of your liquidated assets. You get to keep exempt assets; the rest is subject to liquidation.

In a Chapter 13 bankruptcy filing (reorganization), you establish a repayment plan for your debts. Some debts will be paid in full, and others will be paid in part or not at all.

The difference in approaches between liquidation and reorganization bankruptcies is the reason why a Chapter 7 filing stays on your credit report for 10 years and a Chapter 13 filing is on your credit report for seven years.

For an unsecured creditor to garnish your wages, he must first sue you and win. This type of lawsuit doesn't usually take place until you're six months delinquent, but there's nothing stopping a creditor from moving more quickly once aware of your plans to file for bankruptcy. If you lose the suit, then the creditor can obtain a judgment against you. It's the outstanding judgment that allows the creditor to garnish your wages.

In most states, unsecured creditors can garnish up to 25 percent of your net pay. The greater of 75 percent of your disposable earnings or 30 times the federal minimum wage ($154.50) is exempt from garnishment with some exceptions. You can't be fired from your job because you have your wages garnished for a single debt, but federal law doesn't help you if you have multiple garnishments, although your state's laws may protect you.

It costs $200 to file a Chapter 7 bankruptcy or $185 to file a Chapter 13 bankruptcy. You can file for bankruptcy without hiring an attorney, but you'll have to take ownership of any mistakes you make in the process. Find the U.S. Bankruptcy Court in your region and look at the filing requirements. For more details about bankruptcy, take a look at the U.S. Courts publication, Bankruptcy Basics.