Too much debt?
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Federal bankruptcy law can provide a financial fresh start for people and businesses so deep in debt they cannot pay it. Debt relief can take two forms. Chapter 7, also called “liquidation”, releases a debtor from most kinds of debts. This includes credit card, medical, most law suit debts and many others. Even some income tax debts can be erased. Other kinds of debts can not be forgiven through bankruptcy, such as student loans and child support. If the debtor can make mortgage payments, the house may be kept. The same goes for cars and trucks. If the debtor has any property that is not protected by law, it is sold to pay creditors. The second form of debt relief , called Chapter 13, involves creation of a payment plan by the court, and may allow the debtor to save a home from foreclosure. If a person has stable income sufficient for living expenses plus the missed mortgage payments (spread out over 3 to 5 years), plus certain other debts, plus the costs of the plan, Ch. 13 may be the best way forward. In
Creditors should know that bankruptcy can be contested for fraud or other reasons. An attorney can assist with filing proof of claim, and continuing foreclosure or collections actions if stopped.
Other Bankruptcy Information
Full Disclosure - Strict laws require full disclosure of all debts and property. It is a federal offense to file a case containing false information.
Equal Treatment of Creditors - The law requires equal treatment of creditors. A client may not “play favorites” by paying a creditor more this its fair share. This is called a “preference.”
Credit Counseling - Anyone who needs to file a bankruptcy case first must take a brief credit counseling course. It can be by phone or on line or in person and takes a little more than one hour. After filing the case, the person must take a second brief course.
Means Test - Persons with mostly consumer debts must meet the “means test” to qualify for
Large Businesses - A large business needing debt relief and reorganization may wish to consider a Chapter 11 case. If the debts with collateral are $922,975 or less and if the other debts are less than $307,675 (the 2007 level), then in some cases the business may file a less expensive
Collection Activity - Once a case is filed all collection, foreclosure and repossession actions must stop. This is called the “automatic stay.”
Damages - A creditor who does not stop collection when he should can be sued for damages and can be ordered to pay the debtor’s attorney’s fees.
Collection During Bankruptcy - Some creditors may be entitled to resume collection, but first the creditor must seek permission from the court. This is the motion for relief from stay. If mortgage payments have not been made or if child support payments have stopped, then the creditor should consider filing such a motion.
Discharge - At the conclusion of a case the court issues a discharge order. It says that all debts listed in the case are discharged and there is no legal obligation to pay them. Student loans, child support orders and certain other debts survive. A creditor who tries to collect a discharged debt can be sued for damages and attorneys’ fees.
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Declaring Bankruptcy is not free, but an attorney can help you assess your situation and find the best way for a fresh start.
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