The bankruptcy process involves a trustee who takes and sells property that the law doesn’t allow you to keep (nonexempt property) and uses the proceeds to pay creditors. Some debts are not discharged, such as secured claims on assets like cars and homes, co-signers’ debt and debts that have a lien on an asset.
Creditors are repaid in full
During the bankruptcy process, creditors must turn over their assets to a trustee who sells them and distributes the proceeds to creditors. Depending on the type of asset and how it’s sold, creditors may get all or part of what they’re owed. This method of debt relief can eliminate some types of unsecured debt, such as credit card debt and medical bills.
Bankruptcy can also stop foreclosures, evictions and car repossessions and lower monthly payments. It can even reverse the effect of liens that allow creditors to take, hold and sell property such as a home or car in order to collect on a debt.
For individuals who don’t have enough disposable income to pay all or part of their debt, Chapter 13 bankruptcy allows them to develop a plan to repay creditors over a period of time, typically three to five years. A successful repayment plan eliminates the remaining unpaid debt. In addition, some unsecured debts such as alimony, child support and student loans can be eliminated through the bankruptcy process, although not all.
You get a fresh start
If you’re buried under debt, bankruptcy is often the only way to get out. Depending on the type of bankruptcy you file, it can eliminate or reduce your debts and help you start over with a clean slate. It can also stop foreclosures, repossessions and collection actions. It can even prevent wage garnishment, debt collector harassment and termination of utility services.
The most common type of bankruptcy is Chapter 7. This type of bankruptcy involves selling your assets to pay your creditors. However, certain types of property are exempt from sale. For example, you can keep your car and home, as well as work tools. It can also eliminate the rights of secured creditors (creditors who use a lien on property as collateral for a loan) and discharge certain types of special debts, including child support, alimony, most student loans, court restitution orders, criminal fines and taxes.
However, it can affect your credit record for a long time and can make it difficult to obtain new loans for cars or homes. It’s important to weigh all your options carefully before deciding whether bankruptcy is right for you.
You get a chance to rebuild your credit
Many people struggle to obtain credit cards and mortgages after bankruptcy. Even if
they manage to qualify, it can be at high interest rates. Other debt-relief options like credit settlement can be difficult to navigate and often have a negative impact on credit scores.
Bankruptcy allows you to challenge the claims of creditors that seek more than they are legally entitled. It also stops foreclosure on houses, mobile homes and cars. It can also stop repossession and prevent utility service termination. It can also eliminate the rights of secured creditors (those who have a lien on property such as a car or home loan) and discharge certain debts such as child support, alimony, most student loans, court restitution orders and criminal fines.
You can rebuild a good credit score in the years after bankruptcy by using credit cards sparingly and consistently paying monthly statements on time. It is a good idea to find safe, steady employment so that you can maintain healthy, positive income flow.
You get to keep your property
The bankruptcy process can stop creditors from foreclosing on your house, repossessing your car or cutting off utility services. It also stops creditor harassment, including continuous calls and wage garnishments, and erases some debts if you are up-to-date on your payments (Chapter 7 only).
However, not all debts can be wiped out by bankruptcy, so assessing your income and expenses is essential. You may find that alternatives, such as a debt management plan or loan modification, are more suitable for you. Chapter 13 bankruptcy allows individuals with consistent income to create workable debt repayment plans over three to five years. This type of bankruptcy allows you to keep valuable property that would otherwise be lost in a Chapter 7 case by paying its non-exempt value to creditors over time from your income under a plan approved by the court. This includes second homes, cars and tools of the trade as well as family heirlooms like coin and stamp collections.
Even with some information, you must be sure to seek help from a bankruptcy attorney in Harrisburg, PA to answer any questions you may have. The process of bankruptcy is a lot easier if you have help from an experienced professional.