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What is an emergency bankruptcy filing?

On Behalf of | Jan 13, 2023 | Bankruptcy

Many people spend weeks, if not months, contemplating bankruptcy before they finally file. They tell themselves that if they can adjust their budget or secure a raise in the interim, they won’t need bankruptcy protection. Other people don’t have the benefit of weighing their options.

They need bankruptcy protections almost instantly. Emergency bankruptcy filings are relatively common in the United States, and they involve someone filing for bankruptcy in response to some kind of personal emergency situation.

What might trigger an emergency bankruptcy?

A creditor lawsuit

Often, people reach out to a bankruptcy attorney only after they get served with lawsuit paperwork from a creditor. Once you have missed if you want credit card company or other creditors might take you to court.

A successful debt-related lawsuit could result in a lien against your personal property or even the garnishment of your wages. Thankfully, the automatic stay granted by the courts when someone files for bankruptcy will protect that person from a creditor lawsuit.

Any collection activity will have to temporarily stop. The courts will dismiss lawsuits, and creditors will have to stop calling you until the courts resolve your filing.

Concern about secured debts

Unsecured lenders have to take you to court to force repayment because the debt has no collateral property. Medical care providers and credit card companies need to sue if they want to push you into repayment.

Secured lenders have more protection. You could face the foreclosure of your home after missing a few mortgage payments. The bank can reclaim the home as collateral property for the loan, thereby depriving you of both your shelter and all the money you tested in the property.

Most car loans are also secure financing, which means that your lender could repossess the vehicle after you miss payments. Unlike with foreclosure, you won’t necessarily receive advance notice. When people have missed payments on secured debts, they may file for an emergency bankruptcy to prevent imminent foreclosure or repossession efforts.

Although it is often a better approach to file for bankruptcy before your situation becomes extreme, that isn’t always a realistic expectation. If you find yourself worrying about going to court to face a creditor or losing collateral property, it may be time to seriously consider bankruptcy. Understanding why people file for emergency bankruptcy proceedings can help you evaluate your own situation more objectively.

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The Law Office of Kim Covington is a debt relief agency, and I have helped families, individuals and small businesses, file for bankruptcy relief under the U.S. Bankruptcy Code, for over 23 years.