Bankruptcy is that legal process which helps to erase your debts which you cannot eliminate yourself. Bankruptcy comes as a relief, when you are knee deep in debts and find yourself unable to bring the situation under control. It is relief provided to you by the law as it takes the task of erasing the debts off of your hands and gives you a chance to start new.
What Bankruptcy will do for you?
Automatic Stay: The immediate effect of filing for Bankruptcy is that it puts a stop on all the debt recovering methods that a creditor indulges into against you, i.e. your creditor has to cease practicing collection activities and harassment of any sort.
Erase unsecured debts: Unsecured debts are those in which creditor has no lien on any of your property, having lien on debt makes that debt a secured one which means that creditor can repossess such property in case you fail to pay that debt. Bankruptcy eliminates all your unsecured debts.
Relieves the burden: What Bankruptcy actually does is, it wipes out your personal obligation to pay them. Though the resources will be yours but responsibility would be that of the trustee.
Eliminate some types of liens:
General rule is that secured loan survives bankruptcy. A secured creditor has a right to be paid even after Bankruptcy, value equal to either the amount of debt or value of collateral, which ever is less. However, there are certain kinds of liens which are enforceable outside Bankruptcy but as a principle are eliminated by Bankruptcy. These are:
- where liens impair exemptions
- where liens are preferential
- where liens are secret.
Delaying Foreclosure: If your property is up for foreclosure sale, filing in either of the Personal Bankruptcy Chapters will at the least postpone the foreclosure sale for as long as Bankruptcy proceedings are underway. During this period you may choose to catch up on your missed payments and prevent it. Chapter 7 merely delays foreclosure but if you are lucky, Chapter 13 may be able to avoid it.
Cramming down: Cramming down is done in Chapter 13. Here your debts are modified and you have to pay less than what you promised while taking the debt. Only if IRS has not recorded the lien, debts can be crammed down. If the liens have already been recorded, than those will not be touched.
Bankruptcy stops wage attachments and restores and prevents termination of utility services. You will get back your license if you lost it due to failure in paying Court-ordered damages. Your current employment is not affected.
Bankruptcy does not affect your right to get Social Security, V.A. benefits, unemployment compensation at all.
If there are some debts that are left even after filing Bankruptcy, you can even file for another Bankruptcy to erase the remaining debts.
What Bankruptcy does not do?
Bankruptcy is not an absolute relief, it also has some limitations.
Secured debts survive: If you were not able to pay debts of secured creditors, than creditors by law have a right to repossess your property. Except in cases of few liens that can be eliminated, all the others survive. However, liens survive a bankruptcy discharge only to the extent of the value of the debt payer’s equity in the property.
Child Support, Alimony Obligations and Student loans: These are those claims which survive in full and you will have to pay them in full. No cramming down is possible on such debts.
Only in certain circumstances where you can prove that it would amount to undue hardship to you to pay Student loan, that Student loans may be discharged.
Tax debts: Recent tax debts are never discharged through bankruptcy. Older taxes, however are discharged unless lien has not been recorded, after which it works on same principle of secured credits.
- Debts that were not listed on your Bankruptcy papers
- Debts for personal injury caused due to intoxicated driving
- Debts incurred due to non payment of penalties imposed on you for violating law like traffic tickets.
- Debts incurred through fraud.
Position of Co-signers: Bankruptcy discharges you from paying the debt personally but co-signers may still have to pay left over part of the debt.
It must be kept in mind that for the debts that survive Bankruptcy, they remain unsatisfied after Chapter 7 Bankruptcy is completed i.e. they have to be paid even after that and such debts have to be paid in full under Chapter 13 Repayment.
The limitations do not overwhelm the advantages of filing for Bankruptcy. If you are having second thoughts over filing bankruptcy because it affects your credit adversely, give up all the worrying as non-payment of debts has already done the harm. At least if you file Bankruptcy, you are showing a serious intention to correct the wrong.
For more information in determining whether bankruptcy is right for you, talk to one of our bankruptcy attorneys today. Schedule a free consultation today.