Filing bankruptcy can eliminate the legal obligation to pay many of your debts. A decision to file for bankruptcy should be made only after determining that bankruptcy is the best way to deal with your financial problems.
Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. This process of wiping the slate clean is called a discharge of debts. The goal of a discharge is to reduce debt to give you a new beginning. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.
Whether it is through straight bankruptcy (Chapter 7 Bankruptcy) or through reorganization (Chapter 13 Bankruptcy), most or all of your debts can be cleared. Either type of case may be filed individually or by a married couple filing jointly.
Chapter 7 (Straight Bankruptcy)
In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property, which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors.
If you want to keep property like a home or a car and are behind on the payments on a mortgage or a car loan, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.
Chapter 13 (Reorganization)
In a chapter 13 case you file a “plan” showing how you will pay off some of your past-due and current debts over three to five years. The moist important thing about a chapter 13 case is that it will allow you to keep valuable property, especially your home and car-which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind.
You should speak with an attorney familiar with bankruptcy law to insure you make the best possible choices for your situation.
Tags: bankruptcy, Chapter 13, Chapter 7, debt elimination, discharge, legal advice
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