Personal Bankruptcy - What You Need to Know
Sometimes it just happens: your debts accrue faster than your ability to pay them off. And when debt negotiation and consolidation isn't enough, your last resort may be to file for personal bankruptcy. Despite the fact that filing for bankruptcy will damage your credit rating for an extended period, Federal Bankruptcy Law is designed to provide you with a totally fresh financial slate. Bankruptcy should not be viewed lightly however - it is ONLY recommended when and if you find yourself unable to pay back your debts, and have no plan for climbing out of financial ruin on your own.
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When one decides to file for personal bankruptcy, the first step involves meeting with a qualified bankruptcy attorney, who will guide you through the filing stages and help you to understand what to expect during the process. After this initial meeting, you will file a petition to officially declare your bankruptcy. The petition outlines all of your assets and liabilities - some of which may be seized and liquidated depending on exempt status - as well as your creditors who have debts owed to them.
When filing for personal bankruptcy, you have two different options to choose from: Chapter 7 and Chapter 13, under the Bankruptcy Code. Let's explore the differences.
Under Chapter 7 Bankruptcy, all of your non-exempt property is turned over to an appointed bankruptcy trustee, who oversees the liquidation of these assets and hands them over to the courts in order to secure payments to your creditors. In this manner, many of your debts can be reduced or eliminated completely; however, certain types of debts, including taxes, child support and student loans are generally not eliminated.
It's important to note as well that while Chapter 7 does require you to turn over your non-exempt property, many people who file for Chapter 7 don't possess much property that qualifies for seizure. Clothes, household items and older-model vehicles are all considered exempt, so in a lot of cases, you'll get to retain most, if not all, of what you own. Exemptions vary from state to state, so you must first consult with a bankruptcy attorney so that you know exactly what to expect.
Unlike with Chapter 7, Chapter 13 bankruptcy is typically filed by a debtor who possesses valuable assets, such as a home, that he doesn't wish to have seized and liquidated. Under Chapter 7, such assets would be considered non-exempt; but, Chapter 13 allows the debtor to, through the power of the bankruptcy courts, set up a payment plan with his creditors, and retain possession of those assets. Creditors are usually anxious to recoup monies sooner rather than later, even if they have to settle for a less-than-full amount. So for debtors who have a steady source of income and can comfortably and reliably make payments to his creditors, filing for Chapter 13 Bankruptcy tends to make the most sense.
After you file for either Chapter 7 or Chapter 13, and the courts approve your petition, a few things happen immediately. First, all your transactions are frozen, and notices are sent to your creditors to cease all actions meant to help recover monies that are owed to them. And then once terms of the bankruptcy are agreed to by all parties, a discharge is issued which releases the debt, and creditors then receive a permanent order to stop all collection action.
It should go without saying, but for a bankruptcy to be successful, it's very important to provide full disclosure. Trying to deceive the courts or hiding some assets can result in a declaration of fraud, which is much worse than having to declare bankruptcy to begin with.
Be prepared for a bankruptcy to stay on your credit report for ten years. You can however still usually obtain a debit card, and even some types of credit cards, during this period. So don't despair - if bankruptcy seems like the only way out, a qualified bankruptcy attorney will help guide you along the way. Be cautious about who you choose to work with - sadly, there are unethical lawyers and attorneys that may promise to make everything go away, penalty free and bankruptcy is not an easy pain-free way out, but bankruptcy, can, and does work when used in the right situation where there is little viable alternative to get back on track financially.
For a review of debt relief alternatives to bankruptcy in California and to get a free debt relief analysis along with a savings estimate, simply answer a few questions online.