Bankruptcy is the legal way of wiping out debts. It may seem like a simple solution when you get in over your head in debt. But you must not take bankruptcy lightly. Filing bankruptcy can cause a lot of consequences.
Before you file for bankruptcy, you should understand the process and the things to expect after you’ve filed it.
Bankruptcy is meant to give an individual a new start by wiping away all debts. A person can file bankruptcy for most debts they have incurred. But there are some debts that cannot be cleared through bankruptcy. You have to check each debt to see if it can be cleared by filing for bankruptcy.
During a bankruptcy proceeding a person has to make attempts to pay what they can. Usually, assets and cash will be seized to pay off the debts. There are some assets which are exempt and can not be used to pay off debts. When you start bankruptcy proceedings, creditors can’t collect debts from you anymore.
You file for bankruptcy in a U.S. Bankruptcy Court. There are actually 6 kinds of bankruptcy. Only a few would apply to individuals. Individuals would usually file for Chapter 7 and Chapter 13 bankruptcies.
Under Chapter 13 a repayment plan is set up instead of assets being seized. The exempt assets list varies from state to state, so a person should check their states bankruptcy laws to see what assets they will not have to surrender.
Because of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, there is a new way of filing for bankruptcy. The aim is to prevent people from using bankruptcy to get out of debt and instead look at the alternative ways to get out of debt.
The idea is to pay back debts on a person’s income. If a person can pay back his debts, then he has to. It also requires credit counselling to help ensure a person does not end up with debt problems in the future.
The most important thing you should know is that bankruptcy is not just an easy way to clear debts. When you file for bankruptcy, the creditors aren’t just going to walk away. The court will try to ensure that every step is taken to pay back as much debt as possible.
The court will force a person to sell their assets, like their vehicle, to pay off the debts. Bankruptcy would protect you from the harassment of creditors. Once a debt is cleared through bankruptcy, the creditor can not attempt to collect on the debt ever again.
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