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Bankruptcy Explained

Think of a Bankruptcy as a legal mechanism by which you will be required to give up something – assets or future earnings – and, in exchange, receive relief from the Bankruptcy Court in the form of a discharge of some or all of your debts. If you have a question about bankruptcy, contact a bankruptcy lawyer Raleigh.

In the absence of bankruptcy, millions of people would live in permanent indebtedness, forced always to pay back creditors and never able to save or purchase things for themselves.

The bankruptcy process allows people to avoid that unhappy situation by providing an escape route.  Bankruptcy is not for everyone.  Some people can pay back their debts. And if they can do so, it’s usually less painful to work with creditors to pay back those debts rather than file for bankruptcy Raleigh.

But if those debts form a mountain that makes it impossible or nearly impossible to escape the debt burden, bankruptcy may be an appropriate legal option.

What kinds of Bankruptcy are available to me?

There are two types of personal bankruptcy, Chapter 7 and Chapter 13. Chapter 7 Bankruptcy and Chapter 13 are legal proceedings that are available to a person to cope with a financial crisis. Personal bankruptcy must be filed in a federal bankruptcy court. You will have to pay about between $274.00 and $299.00 in court fees and depending on the type of bankruptcy petition you file.

The attorneys fees are separate.

What is a Chapter 7 Bankruptcy?

Chapter 7 bankruptcy involves the liquidation of all your assets except those that are exempt from the bankruptcy settlement. Exempt property usually includes cars, some household furnishings, and property that you use for work for example. For instance, if you are a painter, your brushes and painting equipment that you use to perform your work would be exempt from the bankruptcy settlement. Exemption amounts vary according to each state.

Under this kind of petition the court appoints a trustee to handle the process of liquidating all of your non-exempt property. The trustee will either sell your property and turn the proceeds over to your creditors or turn your property over to the creditors so that the creditors themselves can liquidate the property.  Any amounts left over from the liquidation and after the payment of your debts and trustee fees will be returned to you.

In most Chapter 7 cases, no money is left over.  Instead, in most cases, you will have remaining debts even after selling all of your non-exempt assets.  Provided you have listed all of your creditors and not abused the bankruptcy process, in most cases the Bankruptcy Court will discharge your remaining debts. This discharge is the thing you’re seeking by filing the petition in the first place.  You want to the Bankruptcy Court to free you from the remaining debts.

The law allows you to file a Chapter 7 bankruptcy once every six years.

What is a Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy allows you to keep some property, but requires you to use future income to help pay creditors over a period of time.  That period of time can be either 3 or 5 years.  At the end of the time period, provided you have faithfully made payments, a Bankruptcy Court will usually grant a discharge of remaining debts.  However, you may still be required to pay certain debts, for instance debts secured by property you intend to keep.  For example, if you have a home secured by a mortgage, you would be required to continue to pay the mortgage even after the bankruptcy is finished, since that is a secured debt.

A Chapter 13 bankruptcy is a court-ordered and approved repayment plan to your creditors.

How can either a Chapter 7 or Chapter 13 bankruptcy help me?

Both types of bankruptcy take care of most unsecured debts and stop repossessions, foreclosures, garnishments, collections activities and utility shut-offs. Both allow people to keep certain assets, although exemption amounts vary.

However, a bankruptcy will not erase child support, taxes, student loans, alimony or fines. Such debts, except in extraordinary cases, will remain with you even after you file and complete the bankruptcy process.

How will a Bankruptcy affect my life and credit?

Bankruptcy should be used only as a last resort. A bankruptcy remains on your credit report for a period of 10 years and makes getting new credit accounts very difficult. You should also know that although your bankruptcy disappears from your credit report after 10 years, you will probably be asked by future employers or lenders if you have ever filed for bankruptcy. If you are in a position that you have no other choice except to file for personal bankruptcy you will survive but I promise you that there will be consequences.

You will be able to get credit. There are lenders who will extend new credit to you for credit cards, cars and even homes but because of the bankruptcy you may have to pay very high interest rates. In other words there is going to be a very high price to pay other than the attorney fees.

How can I get help in filing a bankruptcy petition?

You can file a bankruptcy petition on your own, but in many cases people filing for bankruptcy should consult with a lawyer, even if they don’t necessarily hire that lawyer to file the petition.

Damon Chetson is a bankruptcy lawyer Raleigh who helps people filing for bankruptcy under the United States Bankruptcy Code.  He also helps people who face creditors or debt collection agencies who are engaging in abusive or harassing behavior. If you have questions about the information contained in this article, contact a consumer debt lawyer Raleigh.
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