Debt Management | Basics of Bankruptcy

Bankruptcy Defined

Bankruptcy is a legal right that individuals and businesses can resort to when they are not anymore able to pay off their debts. The debtor begins the process by filing a petition in bankruptcy court. Depending on the type of bankruptcy filed, the non-exempt assets of the debtor can be liquidated to pay off the debts or a payment plan can be created to allow the individual to repay his or her debts in a period of 3 to 5 years. Once the proceedings are finished, the debtor will receive a court order— commonly known as a discharge—that will free him or her from the obligation to pay certain debts.

Bankruptcy is considered only as a last resort for those who are knee-deep in debt because of the long-term repercussions it has on one’s credit report (more on this in the next section). However, it also gives debtors the chance for a fresh start. Although there is no doubt that life after bankruptcy is going to be tough, it also gives the opportunity to individuals to straighten their finances and make themselves more responsible about money and credit.

As a legal remedy to free the debtor from financial obligations, bankruptcy has powers that other solutions to debt do not have. If you are considering this option, you need to have a clear understanding of what it can and cannot do. This way, you have a clear idea of what to expect should you finally take this route.

First of all, filing for bankruptcy can wipe out some or all of your credit card and unsecured debts. This is one of the top reasons why most people file for bankruptcy. Any debt that is not secured by a collateral or lien can be eliminated in a bankruptcy petition. Other common debts that can be discharged in a bankruptcy petition include collection agency accounts, medical bills, personal bills, past due utility bills, business debts, civil court judgments, and dishonored checks that are not based on fraud. 

Bankruptcy also has the power of automatic stay. Once you have filed your petition, debt collectors may not anymore contact you about your debts or continue collection activities. It also stops a pending foreclosure.             

However, bankruptcy offers no protection from liens. If you have a secured debt where your property serves as the collateral, the debt can be eliminated but the creditor has the right to repossess the property. It will also not eliminate child support payments and alimony obligations. Student loans also survive bankruptcy except in very limited circumstances when you can convince the court that doing so would cause you “undue hardship.” Tax debts are also not eliminated in a bankruptcy filing although it is possible to have tax penalties and unpaid taxes past a certain number of years taken care of.

It will also not be possible to discharge debts that you forgot to include in your petition as well as fines and penalties you may have incurred for violating the law. Debts related to injuries and/or deaths caused by driving under the influence are also not eliminated in a bankruptcy filing. If the creditor also convinces the bankruptcy court that some of the debts you have with them should not be discharged (especially those that were obtained through fraud) then they will also survive your petition and will have to be repaid.

Find more articles on debt management  by just clicking on this link: http://consolidatedebtguide.org/

Here are more interesting articles:

·         Get Rid of Debts Through Consolidation Loan Debt Reduction

·         Understanding Debt Settlement

·         Debt Management Tips To Bring Your Life Back On The Right Track

·         Manage your Spending with Credit Card Debt Management