How Does Bankruptcy Work ?
How does bankruptcy work? This question is asked every year by thousands of people. Sometimes people find themselves in financial situations that they cannot correct. People who have so much debt and so many creditors that they cannot pay their obligations to the people they owe, and keep a roof over their own heads. When they start to sink and do not know what else to do then they start to wonder what the bankruptcy pros and cons are. They wonder if they should take the risk of filing bankruptcy for themselves..
Bankruptcy is designed to help people when they have become so financially burdened that there is no possible other way to pay their debts. This can happen to anyone. People buy things on credit and make debts when they are making good money and they have every intention of paying for the things they have financed. Then something unforeseen occurs like an illness or the loss of their job and their debts are suddenly more than they can handle. Most of the time people will try very hard to keep paying their creditors, but they start to fall behind in payments, and the interest charges and late fees start accumulating on their debts at this point. They are suddenly sinking faster than they can bail out the boat and find they need a life raft to cling to until they can make it to shore. That is where bankruptcy comes into the picture.
There is not just one type of bankruptcy. Actually it is divided into four different Chapters or kinds, depending on the circumstances of the person who is filing.
Chapter 7 can be filed by businesses that are partnerships, businesses that are big corporations, by individuals and by married couples. This is probably the most commonly filed chapter. When Chapter 7 has been filed it is like liquidating all your debts. Your debts and the amounts you have left owing are wiped clear, and you begin again after a period of time with a fresh clean slate.
Chapter 7 is the most filed Chapter. Immediately upon filing a stay is put on all creditors. The harassing phone calls stop, the late charges quit mounting up and your creditors cannot repossess anything until the bankruptcy hearing is over.
Chapters 11 is strictly for businesses who are filing, and Chapter 12 only relates to farm families with special types of debt. Chapter 13 is a repayment type plan that is overseen by the court.
The next most popularly asked question on this subject is bankruptcy, how long does it last? After filing Chapter 7 and having your debts discharged, the bankruptcy will stay on your credit report for 10 years. Your credit score can continue to improve during those ten years if you have a good record of paying your debts during them. So even though the bankruptcy is reflected on your credit report it does not mean you will have a really bad credit score. Your credit score probably took a worse hit from the late payments of credit cards and other debts before the filing of Chapter 7.
You may have heard the term discharge of bankruptcy used and not know exactly what it means. When people say this they are referring to the main goal for filing bankruptcy, which is to have a discharge of debts. When you get this the people you owe can no longer hold you accountable for your debt. They cannot penalize you or sue you for the remainder of the debt you owe. They must agree and follow the courts orders concerning your debt and further responsibility to them.
You cannot file any chapter of bankruptcy without going to court. You need sound legal guidance to help you file and to represent your interests in court. You will be legally bound by the decisions made in court concerning your past debt and debtors. You must follow all the guidelines the court gives you in these regards. Your attorney will help you through all the paperwork and to understand all the regulations. There are even online bankruptcy attorneys that can help you through this difficult process, and help you regain control over your finances.
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