The main goal of bankruptcy is to give debtors a chance to have a new or fresh financial start. This happens either by relieving the person of their debt through discharge or liquidation (Chapter 7), or by allowing them to reorganize their finances (Chapter 13). Bankruptcy laws and regulations help ensure that this process is fair for both the borrower as well as the lender.
Will Bankruptcy Wipe Out All My Debt?
Regardless of what type of bankruptcy you file under, bankruptcy will not always wipe out all of your debt. For instance, some debt is deemed to be “non-dischargeable” and must be subject to repayment. Some of these include student loans, federal tax-related debts, child or spousal support, and other types of debts. Thus, you need to consult with a professional to determine exactly how bankruptcy might affect your situation.
What Are Some Consequences of Bankruptcy?
Bankruptcy can have both positive and negative consequences. Some consequences of bankruptcy include:
- Discharge of certain debts
- Prohibits creditors from making collections until the bankruptcy hearings are complete
- Liquidation of some of the debtor’s assets, which involves selling them and giving the proceeds to lenders to help with payments
- Inability to file for another bankruptcy proceeding until after a certain number of years have passed
- Can stay on one’s credit report for up to 10 years
Of course, these effects will vary widely depending on your particular situation, as well as the type of bankruptcy being claimed.
What Is a Reaffirmation Agreement?
In some bankruptcy cases, the debt was secured by collateral. Rather than discharging the debt, the court may allow the lender to repossess the collateral in order to make up for defaulted payments. A reaffirmation agreement allows the debtor to repay the debt rather than have the debt discharged or have their collateral seized by the debtor. This process “reaffirms” or reinstates the original terms of the loan; most reaffirmation agreements do however require the debtor to eventually pay the loan in full (rather than a reduced amount as is common in Chapter 13 filings).
Should I Hire a Lawyer for My Bankruptcy Issue?
As you can see, bankruptcy is a complex process that generally requires legal assistance from a bankruptcy lawyer. You may wish to hire a lawyer if you have any questions or disputes regarding bankruptcy. Also, if you need to attend a bankruptcy court meeting or if you need to file additional legal proceedings, your attorney can represent you during those processes.