Jun 10
3
What Is Bankruptcy?
Bankruptcy is a financial statute where you are legally declared incompetent to pay back your creditors. Or simply put, declaring bankruptcy means eliminating some or all of your debt and providing you with a fresh start financially. To many people, the word bankruptcy presents such a stigma to one’s ego and public persona. But the truth of the matter is that bankruptcy can really help you if you are dire financial stress. Bankruptcy is within your legal rights and you should not hesitate to use it if you are “in over your head” with debt. Bankruptcy is good at eliminating credit card, utilities debt while you will find it difficult to eliminate debts like child support, alimony, most tax debts, student loans, and secured debts. By declaring bankruptcy, it can affect you in many ways, some of it harmful yet the benefits can outweigh it by a lot.
What Bankruptcy CAN Do For You?
If you have a lot of debt (secured or unsecured) and you are having difficulty paying down the debt, bankruptcy can be your best friend. It will help you reduce or eliminate your debt so that you can start fresh and start a life with virtually no or little debt. But bankruptcy does come with a price that you will have bad credit history for the next 7-10 years, so you will have to make sure that this is your ultimate decision.
How Can Bankruptcy Help Me?
- Bankruptcy can eliminate credit card debt and other unsecured debts
- Bankruptcy will stop creditors from harassing you and any collection activities
- Bankruptcy can eliminate certain kinds of liens
Bankruptcy can help you get rid of the unsecured debts that you have. Unsecured debts are the ones that are not collateralized by an asset. Credit cards, cell phone bills are all unsecured debts because if you don’t pay these bills, the only recourse that the creditors have is to sue you in court for the unpaid bills. Bankruptcy can help you if you have secured debts such as mortgages.
If you are late with your debt payments, I am sure you have been bombarded with phone calls any time of the day. Even if you owe the creditor $100 only, the collections department of the creditor will still call you day and night asking for the money back. But once you have filed for bankruptcy protection, the creditors cannot legally contact you anymore. If you are using a bankruptcy lawyer, all debt collection or legal correspondence will have to be filtered through the bankruptcy lawyer. Even if the creditor has filed a petition to foreclose on your home, filing bankruptcy will delayed this foreclosure process until the bankruptcy case is discharged or dismissed.
A lien is the creditor’s right to take some or all of your asset that the loan is based on. If you are filing Chapter 7 bankruptcy, you can potentially eliminate some of these liens which are based on some valuable assets.
What Bankruptcy CANNOT Do For You?
- Bankruptcy cannot prevent a secured creditor from repossessing the asset
- Bankruptcy cannot eliminate child support or alimony obligations
- Bankruptcy cannot eliminate student loans, unless you have very rare circumstance
- Bankruptcy cannot eliminate most tax debts.
- Bankruptcy cannot eliminate any debt you did not list in your bankruptcy petition
- Bankruptcy cannot eliminate any debt payment for personal injury or death caused by DWI
- Bankruptcy cannot eliminate any legal fines and penalties such as traffic tickets and criminal and civil restitution
Bankruptcy discharge eliminates the debt that you owe to the creditor. But the creditor still has the lien (the right) to the asset in question, therefore legally the creditor can repossess this asset. An example of this is your $300,000 mortgage. Your owe the mortgage bank $300K + interest over the life of the loan. If you default on the mortgage and declared bankruptcy, bankruptcy law allows the $300K + interest (also known as debt) to be eliminated. Since the mortgage company has a lien on your house, the mortgage company has every right to repossess the house.
Child support and alimony payments survives even after you have filed for bankruptcy no matter what type of bankruptcy you are filing.
In order to get the student loan to be discharged where you will not not owe any money to the lender for your education, you will need to proof to the bankruptcy court that repaying this student loan will cause you “undue hardship”. Undue hardship is very difficult to proof in the eyes of the law.
Bankruptcy can be used to eliminate your taxes owed to the IRS if many requirements are met. Most of these requirements center around how recently the taxes are for.
As you can see, the law of bankruptcy in US can help you if you choose to do so. Bankruptcy is best described by “it is not just an escape from the past, it is the door to a better future, if you choose to take it”.