Filing for bankruptcy can be a workable option for individuals who need relief from their financial debt. Bankruptcy is a court process that allows an individual to have a fresh financial start. It can relieve much of the stress associated with debts that have accumulated from credit cards, mortgages, car loans, and other types of creditor-debtor arrangements. However, bankruptcy is a complex process that requires extensive planning and should involve the oversight of a financial advisor or lawyer.
Unless you will be filing bankruptcy as a business, you will likely be filing under consumer bankruptcy laws. There are two basic types of consumer bankruptcy: Chapter 7 and Chapter 13. Chapter 7 bankruptcy is known as “Liquidation Bankruptcy,” while Chapter 13 is known as “Repayment Plan Bankruptcy”.
Chapter 7: The main feature of Chapter 7 is that the court may allow some or even all your debts to be “discharged” at the end of the process. This effectively eliminates the obligation to pay the debt. However, some debts cannot be discharged, such as:
During a chapter 7 bankruptcy proceeding, some property may be sold in order satisfy some of the existing debts. However, certain types of property are protected under several bankruptcy exemptions.
Chapter 13: The main feature of Chapter 13 bankruptcy is that the court allows the debtor to reorganize their debts to be paid slowly over a longer period of time. Instead of discharging the debt, the person is given more time to pay back their debt. This type of repayment plan bankruptcy is best for persons who have a steady income stream, are good at sticking with payment plans, and have a lot of non-exempt property.
In both Chapter 7 and 13 bankruptcy, the court will issue an “automatic stay” on collections. This means that debtors are prohibited from collecting on debts during the bankruptcy process. In addition, the court will usually appoint a trustee who acts as a mediator between the debtor and the creditors.
Individuals should carefully weigh both the positive and negative aspects of filing for bankruptcy. Some of the pros and cons of filing bankruptcy are:
For some people, bankruptcy might not be the most favorable option. It is usually reserved as a sort of "last resort effort" in case other options fail. Before filing for bankruptcy, you may wish to consider alternative steps, such as:
Filing bankruptcy is a major project. It involves a complete assessment of your financial capabilities as well as a projection of your future expenses. You should consider hiring a tax attorney or a bankruptcy lawyer if you think that filing bankruptcy might be necessary. An experienced attorney can help you identify if declaring bankruptcy would be in your best interest and help direct you through the legal process required.
Last Modified: 10-19-2017 03:22 PM PDTLaw Library Disclaimer
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