For some, bankruptcy is an easy way out. For others, it is the last resort they hoped never to come to. Because it is such a big deal in a person?s financial life, there have come to be a wide array of misunderstandings that go along with it. In recent years, several changes have taken place in how bankruptcy is filed, as well as how and what type of debts can be expunged using the bankruptcy process. One notable example is student loans. In order for student loans to be erased, you have to show that they present an ?undue hardship? under the law.
First off, bankruptcy doesn?t mean that you?re going to lose everything. This misconception may have more to do with ?Wheel of Fortune? or ?Monopoly,? but it isn?t reality. In most cases, bankruptcy liquidation means that extraneous things are sold off to pay your debts. Coin collections, art, antiques and furniture are typically attached, but not always, and then only under chapter 7 bankruptcy. Chapter 13 is another beast all together.
Chapter 7 bankruptcy is total liquidation of assets under court order with exclusions. These exclusions are like an allowance given to you by the court that you can use to ?purchase? some of your possessions back from the bankruptcy sale. These might include your vehicle, tools that you work with, and even musical instruments. How much you can retain during bankruptcy proceedings is different in every state and can be subject to the discretion of the bankruptcy court. For example, in some states, law allows you to retain up to $3,500 for a vehicle. That means that if your car books for $3,000, you can keep it. If it is worth $4,000, then the car will be sold, you will be given $3,500, and your creditors will be given $500 toward your debt.
In Chapter 13, you may not have to give up anything that you own free and clear. Of course, Chapter 13 bankruptcy differs from Chapter 7 in that you do have to pay back your debts, but the payments on those debts are structured in such a way that you can, based on your current income, pay them off. While 7 is basically for those who have no way of paying their debts whatsoever, 13 is a restructuring of those debts to make them more manageable.
Declaring bankruptcy is no small matter, and should never be entered into lightly. The existence of a bankruptcy of any type on your credit report will negatively impact your credit rating for at least 10 years, meaning that loans you apply for will charge you higher interest rates, and you may not qualify at all for some forms of credit. It can impact your ability to get a job or to find an apartment, much less purchase a home. While it may seem like an easy escape from under a mountain of debt, it is critical that every other option is exhausted first. If you feel as though you have no other option but to file for bankruptcy, choose a legal professional who has a strong reputation within your community.
Source: http://www.purechecks.com/blog/basic-info-if-youre-considering-bankruptcy/
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