Filing for Bankruptcy
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What Is Bankruptcy?
Bankruptcy is a type of legal proceeding involving a person’s credit, finances, assets, and debt. Basically, the person is granted a "fresh start" if they are experiencing issues with indebtedness. The person can file for bankruptcy and either receive a cancellation of debt (Chapter 7), or they can be granted some time to restructure their finances so they can begin repaying their debt (Chapter 13). Individual persons can file for consumer bankruptcy, but business entities may also file their own bankruptcy proceedings as well.
Both Chapter 7 and Chapter 13 bankruptcy have certain eligibility requirements that you must meet before you file your petition papers. To qualify for Chapter 7 bankruptcy, your income must be low enough to pass the bankruptcy means test. To qualify for Chapter 13 bankruptcy, the amount of your debts and obligations must not exceed certain dollar limits.
What Are Some Common Reasons People File for Bankruptcy?
The most common reason people file for bankruptcy are sudden medical expenses, typically due to a medical emergency or a death in the family. The next most common reasons people file for bankruptcy is that they are having trouble keeping up with loan payments. This can come from a variety of sources: home mortgage loans, credit card loans, student loans, car loans, etc. If the person is unable to pay the loans back, chances are they will be struggling financially in other areas.
Other reasons for bankruptcy filings include:
- Slow or failing businesses endeavors
- Financial losses after being sued for damages
- Sudden expenses or financial crises
- Changes in employment situation
- Family law obligations (although child support is non-dischargeable)
What Are Some Tips when Filing for Bankruptcy?
When filing for bankruptcy, you should:
- Be absolutely clear with your financial statements. This can help speed up the process and will prevent instances of fraud or other violations.
- Inform all the parties involved: You will need to make contact with your debtors, mortgagors, and any parties who may be affected by the filing. A lawyer can help you identify which parties need to be contacted.
- Watch out for deadlines: Like any legal proceeding, bankruptcy has its own filing deadlines, which must be followed. Also, there are various eligibility requirements for bankruptcy; not all people are allowed to file.
Lastly, you should keep track of all the documents that are being requested of you during the bankruptcy hearings. This can be a major project, and may require the assistance of an accountant and/or attorney.
Does All My Debt Get Discharged in Bankruptcy?
No. Not all debts are eliminated in bankruptcy. Before your file for bankruptcy, figure out whether the debt or debts that you are concerned with or want to be eliminated qualifies for a bankruptcy discharge. If most of the debt that you owe will remain after bankruptcy, then filing for bankruptcy is not a good option. Consider talking to lenders and creditors in coming up with a better solution or payment plan regarding the non-dischargeable debts. Most creditors are willing to work with debtors regarding the debt owed.
Below are some debts that are often not discharged in bankruptcy or are very hard to discharge:
- Past due child support
- Past Due Income taxes
- Student Loans
Should I Hire a Lawyer for Help with Filing for Bankruptcy?
The average consumer usually requires legal assistance when it comes to filing bankruptcy claims. You may wish to hire a lawyer if you need help with any type of bankruptcy or other financial claims. Your bankruptcy attorney can instruct you on how to file your case, and can provide you with legal advice and representation throughout the entire process.
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Last Modified: 08-27-2015 10:38 AM PDT
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