If you have no assets, should you file bankruptcy anyway?

Some people pass around a common bit of bad advice, to the effect that a person with no assets is “judgment proof” and therefore never needs to file a bankruptcy case.

While there is a grain of truth in this assertion, as always, there is another side to the story.

First, if a “no asset” debtor avoids bankruptcy and stops paying their credit card debt, the creditor may still decide to file a lawsuit and get a judgment. With a judgment the creditor will be able to go after the debtor’s future assets if the debtor doesn’t file bankruptcy. And you had better enjoy making multiple trips to the Lawrence District Court, Haverhill District Court, etc., instead of the one trip to bankruptcy court that a bankruptcy case usually entails.

Second, if the “no asset” debtor owes the IRS money, they may be putting their social security benefits at risk. The IRS has the power to garnish social security benefits and other assets which may have received some protection in bankruptcy.

Third, no one really knows what the future holds. If a debtor files bankruptcy, the debts they owe may be discharged and any future income from a job, inheritance or other assets would be protected. It the debtor avoids bankruptcy, they have no protection for future assets which could be seized by creditors seeking repayment on old debts. Debts don’t go away; they simply get old, unless you pay them off or discharge them in bankruptcy.

And the ultimate reason for filing a bankruptcy is simply to stop the awful harassment that debtors are subject to. Debtors who simply stop paying their debts instead of filing bankruptcy end up avoiding their phone and mailbox. The stress of knowing that you owe money and are receiving hostile creditor calls can be relieved by bankruptcy. Even if a debtor has no assets, it could be worth their peace of mind to file bankruptcy anyway.


By Doug Beaton

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