As mentioned in a previous piece about paying medical bills, owing a large amount of money that you don’t have the funds to pay off can lead you to a situation where you’re considering filing for bankruptcy or being forced into wage garnishment. This can be a terrible situation, and knowing whether to choose bankruptcy or garnishment can go a long way in helping you eventually get your financial life back on track. It will, however, take a long time and some hard work.
You should also be aware of the fact that, in either situation, your credit is going to take a serious hit. This is because, no matter what your situation might have been, the fact that you’re facing bankruptcy or garnishment shows that you couldn’t pay your debts on time – the numbers couldn’t care less what might have been happening to you in life. These negative marks against your credit will last on your report for seven years except for the case of Chapter 7 bankruptcy.
There are a couple different bankruptcies to consider compared to garnishment, and they are as follows:
Chapter 7 Bankruptcy
The moment that you submit the paperwork for Chapter 7 bankruptcy protection, the law will step in with what’s called an “automatic stay,” which will keep creditors from posting any kind of further collections against you. This also applies to wage garnishment, which is itself a collection action. Where Chapter 7 bankruptcy excels is in helping you get to a more comfortable situation after racking up a mountain of debt.
There are exceptions to what Chapter 7 will protect you from as far as collections is concerned, though. This program will not deter any collections that have to do with tax collection or child support, so keep that in mind.
Likewise, you should know that this type of bankruptcy will stay on your credit report for ten years. So, though it is more lenient than Chapter 13 or wage garnishment, it will have a more longstanding effect toward your credit in the long term.
Chapter 13 Bankruptcy
Where Chapter 13 bankruptcy differs from Chapter 7 is that it will still leave you having to make monthly payments. This might be a better choice for those who can still make any kind of payments since you will have to do so under Chapter 13. Since wage garnishment can end up leaving you with only half of your paycheck every month, Chapter 13 Bankruptcy is a better option for many since the payment maximum is set by the courts. Additionally, under Chapter 13, your property is not available for seizure, making it likely the best choice for homeowners.
Unless you happen to receive a seriously substantial paycheck, bankruptcy is almost always better than wage garnishment. In this option, they can take huge portions of your paycheck to pay back your creditors. The only way that wage garnishment is superior to bankruptcy is that you can end up being done with all of your payments in a much faster time frame, making it easier to get back to repairing your credit from major credit reporting agencies.
Have you ever had to go through wage garnishment or bankruptcy? Let us know in the comments below how it all worked out for you. Also, if you have any tips on the choice between filing bankrupt or having your wages garnished, we’d love to hear your take as well.