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Bankruptcy is a legal process, through which a debtor seeks to eliminate debts that he cannot pay. It can be used by individuals, couples and incorporated companies. All debt secured by physical assets are outside bankruptcy proceedings and can be resolved through the repossession of the asset by the securities holder.
The services of a bankruptcy lawyer in the United States or a bankruptcy trustee in Canada and Europe is required to declare bankruptcy. A free evaluation meeting can be scheduled to meet with the lawyer and discuss your personal situation. They may suggest other options to resolve your debt issues.
In preparation for this meeting, you should organize the following information: a complete list of all your outstanding debts, the name of the creditor(s), the account numbers, the amounts owed, the monthly payment and the number of months behind, if any. Indicate if the debt is secured or unsecured.
A secured debt is one where the title of the asset is held by the financial institution. Mortgages, car loans, motorcycles and motor homes are secured loans. These assets can be considered exempt or can be repossessed by the company with the title upon filing for bankruptcy. Unsecured loans include credit cards, lines of credit and personal loans. These debts are all eligible to be included when you declare bankruptcy.
In the US, there are two kinds of bankruptcy, chapter 7 and chapter 13. The correct version is based on a comparison of your monthly income against the median income value provided by your state. The number of dependents, income level and basic expenses are used in this calculation. If you income is equal to or less than the median, you can file under chapter 7. This version allows you to completely clean off all debts.
If your income is above this value, you need to complete a means test before you can declare bankruptcy. This is a calculation of your monthly income, less your secure debt payments and other expenses. If the remaining disposable income is less than $100 US Dollars (USD), you qualify under chapter 7. If not, you must file under chapter 13.
Chapter 13 bankruptcy is for people who are working, but are unable to meet all the obligation and what to pay a reduced portion. The total unsecured debts must be less than $100,000 USD and the total secured cannot exceed $350,000 USD. This type of filing requires more effort from the lawyer, and as such has higher fees to properly declare bankruptcy.
Most people use the services of a bankruptcy lawyer to complete the complex paperwork necessary to declare bankruptcy. They will send an official notice of impending bankruptcy to all your creditors, who have a certain amount of time to respond. During this time, all collection efforts, wage garnishments, foreclosures and court cases stop.
The creditors have the right to object when you declare bankruptcy. They must provide a basis for this rejection, which can include knowledge that you have funds hidden, excessive use of credit when you knew you were insolvent, or attempts to obtain additional credit through fraudulent representation.
Two counseling sessions on debt management are mandatory, one before and one after your creditors accept you declare bankruptcy. Failure to attend these classes can result in the rejection of your bankruptcy. If the bankruptcy is accepted by all the creditors, your bankruptcy lawyer will inform you that the bankruptcy is discharged and you are officially bankrupt. This rating will appear on your credit file for the next 7 years, severely limiting your ability to obtain any type of credit.
Some items are not included in bankruptcy proceedings. You will still have to pay these debts even once you after you declare bankruptcy. The rules vary, depending on the state and country. Exemptions usually include child and spousal support orders, student loans, court ordered victim payments, and court awards as the result of a lawsuit.
@Reminiscence, I'm glad you had a good result after filing for bankruptcy. I wasn't quite as fortunate. I filed for Chapter 13 after getting way behind on my mortgage payments and some business loans. The bankruptcy attorney didn't charge me for an initial consultation, but his fee for representing me in court was several hundred dollars. The courtroom was filled with other bankruptcy filers and their attorneys, all waiting to see one federal judge in his office.
I thought some of the business loans might be forgiven because of the circumstances behind them, but the judge wasn't convinced. I owed money to every debtor, so my monthly payments to the trustee were substantial. I may no longer have good credit, but at least I can pick up a phone and not hear another bill collector on the other end.
The main reason I filed for Chapter 13 bankruptcy in my 20s was a very aggressive collection agent. I had taken out a student loan to attend what turned out to be an unaccredited business college. The school closed without warning and I was left with several thousand dollars in loans. The collection agent convinced me that my wages would be garnished and the former school's owners would take everything else in court. I was genuinely scared, so I sought out a bankruptcy attorney in town and he agreed to help me file Chapter 13.
As it turned out, the Department of Education was investigating student loan fraud at that same defunct business college. My attorney filed a lawsuit
within the Chapter 13 proceedings and we prevailed. The student loan debt from that school was forgiven. No one from the school even appeared to challenge the judgment. I still had to go through the Chapter 13 bankruptcy process and send a monthly payment to a court-appointed trustee, but at least the collection agency could no longer contact me about the forgiven loan.
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