Before you can make an informed decision to file a bankruptcy, you should be aware of what could happen if you don't. I'll assume if you're reading this that you owe more money than you can repay. What can your creditors do to you when you don't pay them?
Generally the first step in the collection process is telephone abuse. This is the cheapest alternative for the creditors, obviously; staffing a call center is inexpensive, and a minimum wage employee with a headset and a PC can probably call 200-300 people per day. Catch phrases like "when can I expect a payment" and "if you don't pay I will garnish your salary" are classics of course. The garnishment reference of course is highly misleading. Collectors are limited in what they can say and how they can say it by the Fair Debt Collection Practices Act, a federal law that (predictably) got watered down in Congress from the original concept advocated by the consumer rights advocates who wrote it. The FDCPA only governs collection agencies, so some creditors make collection calls themselves or spin off a "collection division" of their corporation in an effort to avoid compliance. I would say most collectors obey the FDCPA, which is a good thing, but some outliers exist. If anyone threatens to arrest you or put you in jail they are (1) lying and (2) violating the FDCPA. A consumer rights attorney is going to want as much information as possible about whoever makes that call to you. My favorite story in this vein is the Atlanta collector who wore a uniform that looked just like a Fulton County Sheriff, only instead of a badge they had a patch with the initials of their collection agency. That guy actually got sentenced to a couple of years in jail for impersonating a police officer.
It is common for defaulted credit card accounts to be sold to junk debt buyers at this point. Most, not all, credit card companies will nag you on the phone for a few months and then sell the defaulted account to a junk debt buyer for pennies on the dollar. The junk debt buyer has the same array of collection methods available to it as the original creditor, but a lot less ability to prove you owe them money (these transactions are generally electronic). That may be useful if the case ends up in court.
The second step is sending an astonishing variety of mail to a defaulted debtor. Collection notices, demand letters, the flood is never ending. If you do end up filing a bankruptcy make sure you collect all of these notices and get them to your bankruptcy attorney.
The most aggressive step a creditor can take in America is to file a lawsuit against you. Generally you learn of a lawsuit when someone knocks on your door and hands a complaint and summons to you. Many people tell me they are sued and never find out about it; if they are renters who frequently change addresses the risk is certainly higher. Sometimes the process server hands the complaint and summons to someone else who lives at your house; a teenager, guest or relative, who fails to tell you about it. Usually, however, you get handed the complaint and summons. Get this to your attorney right away to preserve your options. It may be that your best outcome of such a lawsuit is buying a few months time to plan a bankruptcy or settlement, but you definitely want as much time as possible. I could talk for a long time about this process, but that is the basics.
If a creditor or junk debt buyer sues you and wins (which takes 30 days if you ignore it, and maybe 6 months if you respond and participate) they get a judgment. The judgment gives them the right to record a lien on your real estate, but the most lucrative collection right they earn is garnishment. Garnishment is intercepting money somebody else owes to you. If a creditor garnishes a bank account, they get whatever is in there the day they garnish. If they garnish an employer they can get 25% of your net income IF it exceeds the minimum wage for a full time position. Pension payments, social security benefits, unemployment benefits cannot be garnished at all. If your only form of income is exempt from garnishment, you are "judgment proof" and may not need a bankruptcy at all.
Hopefully this helps you understand the process.
