When filing for bankruptcy, you surrender your "non-exempt" property in exchange for forgiveness of your debts. Your property is sold and the proceeds are divided among your creditors, and you no longer owe those debts.
In October 2005, the United States Congress revamped the Bankruptcy Code, making it far more difficult to file bankruptcy and obtain a final discharge of debts. The new bankruptcy law requires that debtors repay certain categories of debt depending on your current financial situation.
Should I file for bankruptcy?
Filing for bankruptcy is a debtor's most extreme remedy. The consequences can be substantial. It is available only once every seven years, so once you use it, you are barred from using it again for quite a while, no matter how badly you need it. So don't use it until you understand what you will get out of it and what alternatives might otherwise exist.
Depending on the amounts, age and types of debt incurred, you and your attorney will need to determine whether Chapter 7 (also known as straight liquidation) or Chapter 13 (partial repayment of debt) is right for you.
Some debtors prefer Chapter 13, especially if you are a wage earner and most of the debt you owe is of the “secured” type – which means, the creditor still possesses a security interest in the property (known as collateral) and the creditor still has the legal right to take possession of the asset upon your default. The most common example of a secured debt is your home mortgage. If you default on making your mortgage obligations, the bank can foreclose on your property and evict you from the home. Your creditor, usually the bank, has a secured and enforceable interest, which must be dealt with in your bankruptcy plan.
Given the consequences of bankruptcy many people still end up filing file for bankruptcy when there may be little need to do so. Sometimes negotiating with creditors yourself or getting the assistance of a credit counseling service to resolve your outstanding debt can resolve the unmanageable part of your debt situation, therefore relieving you of the need to file for bankruptcy. There are free credit counseling services usually available from both your state as well as from the federal government.
A bankruptcy lawyer can help you make the best decision about whether to file for bankruptcy or try to work your debt out informally with your creditors. When visiting the bankruptcy attorney, make sure you bring all of your past due bills, tax returns, paychecks and bank statements. You might also bring a list of all your known creditors and a list of your bills you absolutely must continue to pay to keep your life from falling apart. This will give your lawyer information that will help you decide whether bankruptcy is in your best interests given your individual circumstances.
Make a budget of your necessary expenses and a list of all sources of income whether its part-time or fulltime employment. The idea is for your lawyer to get an actual and realistic fix on what you will need to make the bankruptcy work for you.
While the U.S. Bankruptcy Code is national in scope, sometime bankruptcy laws can vary significantly, depending on your states procedural rules. Most states discourage any form of self-dealing and require the debtor to act in good faith and disclose all assets and liabilities. For example, if the debtor is found to earn sufficient income to make substantial repayment of the debt, the court might dismiss the bankruptcy filing as a violation of the debtor's duty of good faith.
For more information on debt and bankruptcy visit GotTrouble.com