People find themselves struggling financially for all kinds of reasons, ranging from a death in the family to the loss of a job. If you have reached the point where your current income can no longer cover all of your expenses, you may soon find yourself hounded by creditors unhappy with missed payments or balances that have exceeded the limit for your line of credit.

Many times, creditors will engage in collection activity for months, sending threatening letters and calling you at home or even at work in an attempt to bully you into paying despite your current financial hardship. If they still can’t get the results they want, the companies trying to collect on your outstanding debts may soon take more drastic actions, such as filing a lawsuit against you in the hopes of garnishing your wages.

In such a situation, if you know you cannot reasonably repay the creditor or afford your other expenses with garnished wages, filing Chapter 13 bankruptcy shortly after service for the lawsuit by your creditor may be the best strategy to mitigate the impact of that lawsuit.

Bankruptcy protections include an automatic stay

When someone files for bankruptcy, it takes months to go from the initial filing to the date of the final hearing and the discharge of their unsecured debts. In order to protect people already experiencing financial hardship, bankruptcy law mandates that creditors cease all collection activity as soon as they receive notice of a pending bankruptcy.

They have the right to respond to your filing at a creditor meeting in order to include their company name in the repentant plan for your chapter 13 filing. However, they cannot take any future steps to collect on your debt unless the courts reject your filing. The automatic stay can prompt the courts to cancel court dates for pending lawsuits, prevent the foreclosure of a home and stop the repossession of a vehicle. Your automatic stay will also stop your creditors from calling you.

However, automatic stays are not retroactive, which means they don’t apply to previous collection efforts. Once you actually go to court and a creditor secures a judgment against you, the automatic stay won’t be as effective for that particular debt. Timely filing prior to the court date can prevent a judgment and the garnishment that could result.

Garnishment could result in snowballing collection efforts

In Arkansas, creditors are subject to the same restrictions under law as those set by the federal government when it comes to wage garnishments. In theory, a creditor who successfully sues you over an unpaid debt could secure a garnishment of as much as 25% of your disposable income, which includes your wages after taxes and certain retirement plan contributions. Only those who make minimum wage typically have any protection against garnishment.

Losing out on a substantial portion of your paycheck will make it even more difficult for you to repay your other creditors and continue paying your cost of living expenses. Avoiding a garnishment through Chapter 13 bankruptcy not only prevents future financial hardship but it also helps you set yourself up for more success in the future by eliminating those unsecured debts after you complete your repayment plan.