Bankruptcy is a legal procedure designed both to protect an individual or business that can't meet its financial obligations and to protect the creditors involved. To begin the process, proper papers must be filed.
There are specific chapters of the federal bankruptcy law. Proceedings under Chapter 7, known as straight bankruptcy, involve taking most of the borrower's property. The court then appoints a trustee to sell off the assets and distribute the cash among the creditors. Proceedings under Chapter 13, known as wage earner's bankruptcy, involve the borrower proposing a plan for repaying a portion of the debt in installments from the borrower's income.
Once the bankruptcy proceeding ends, the borrower is no longer liable. This occurs when the bankruptcy court enters a discharge order in a Chapter 7 case or the borrower has paid the debts due to the credit grantors according to a plan in a Chapter 13 case. In legal terms, the court has discharged the borrower from the debts. The borrower then starts over again with a clean financial slate, but the record of the bankruptcy will remain on the borrower's credit record for up to ten years. Bankruptcy may be the best, or only, solution for extreme financial hardship, but it should be utilized exclusively as a last resort since it always has long lasting consequences. You should only file for bankruptcy after carefully considering the effects it may have.
What Effect Does Bankruptcy Have on Taxes?
Taxes are debts to a government agency much like debts you might have to individuals and companies. They are different from other debts, however, because the governmental agencies collecting these taxes have greater power over you and your property than other creditors have.
Since the Bankruptcy Code provides for protection to anyone filing bankruptcy, these taxing authorities may have less ability to affect you and your property while you are under bankruptcy protection. The filing of a bankruptcy case may stop collection activity of governmental agencies for the collection of taxes owed. A Chapter 13 bankruptcy can provide for level monthly payment of your tax obligation without additional interest or penalties. Chapter 7 and Chapter 13 can reduce or eliminate certain tax obligations that have been due and payable for more than three years.
What Happens to Co-Signers Of My Debts when I File for Bankruptcy?
If you file Chapter 7 bankruptcy, the creditor can proceed against your co-signers, according to the terms of the debt agreement. However, if you file a Chapter 13 debt adjustment, a co-signer is protected if the following conditions are met:
- the debt is consumer debt from personal purchases
- the debt was not incurred in business
- the co-signer does not benefit from the proceeds of the debt
As long as the debtor is making the required payments under the Chapter 13 plan, the creditor cannot act to collect from the co-signer. The purpose of this provision of Chapter 13 is to allow a debtor to repay the debt without the creditor approaching the co-signer for repayment.
In conclusion, if you file a Chapter 7 bankruptcy, your creditors have the right to immediately demand payment from your cosigners. If, on the other hand, you file a bankruptcy petition and a proposed payment plan under Chapter 13, your creditors cannot collect from your co- signers unless it becomes clear that the Chapter 13 plan will not pay the entire amount owed. It is important to choose a qualified lawyer or financial adviser to set up your repayment plan. If you are unable to make your payments under Chapter 13, you may still file for Chapter 7 bankruptcy. However, your creditors would then have the right to immediately demand payment from your cosigners.
How Can Creditor Harassment Be Stopped?
There are several strategies for dealing with creditor harassment. First, be as honest as possible. If you explain why your account is in default, you may be able to persuade the creditor to allow you more time for payment or to make other arrangements for payment. But this is not always the case. Some creditors and collection agents are reasonable, while others may rely on threats and intimidation.
A second method of stopping creditor harassment is to file for bankruptcy. Though bankruptcy can have long-lasting consequences, it may be the best solution in certain cases. In addition, filing for either Chapter 7 or Chapter 13 bankruptcy will immediately stop creditor harassment.
How Can I Protect My Property from Repossession?
Repossession is the power of the creditor to take back goods because of the buyer's failure to meet the loan payments.
If you fall behind in a loan, you should contact your creditors as quickly as possible and attempt to work out a voluntary repayment plan. You can do this yourself or with the assistance of a credit counselor.
Bankruptcy may be able to cancel the debt, or it may give the opportunity to stop the repossession. However, bankruptcy should be used in only the most serious circumstances since it can affect your credit for up to ten years. If your property has already been repossessed, some states give you the opportunity to have your property returned by paying all outstanding loan charges, fees, and costs.
Do I Need a Bankruptcy Attorney?
There are many different types of bankruptcy and knowing which type is best for you can be difficult to determine. Consult an experienced attorney who can help you find the best option.
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