When you're in a financial hole that is so far down that there seems there's no escape, there is one final option: bankruptcy. Bankruptcy is a way of legally stating that you cannot pay the debts that you've accumulated. The result of this declaration is that your creditors can no longer attempt to collect money or property from you directly. Effectively, bankruptcy allows you to "wipe the slate clean" in some respects - you will no longer be legally bound to pay certain debts after filing for bankruptcy.
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There are five primary results to filing for bankruptcy. The first is, as mentioned, is that it can wipe away previous debts. This is known as discharging - but be aware that not all debts can be discharged. A nice side effect is that it'll stop annoying and harassing calls from creditors. Second, bankruptcy can stop wage attachments, which are when a creditor gets a legal order to take money from your paycheck to pay a debt. Finally, it protects your future interests, meaning that any new property or money you own is safe from creditors.
As noted above, not all debts can be discharged. For the most part, any unsecured debt can be discharged - unsecured debts are ones that are not backed by property, such as credit cards. Secured debts, such as car loans and home mortgages, are attached to property, and can be repossessed by a creditor. Other debts that cannot be discharged include: alimony and child support, student loans, debts resulting from fraud, tax bills, and any debts accrued after filing bankruptcy.
In most cases, people file for bankruptcy when they want to hold on to some of their property and protect it against creditors. There'd be little point in filing if you'd just end up homeless on the street. When you file for bankruptcy, you can usually keep your furniture and other household items, some jewelry, clothing, and any work-related tools. You can also keep up to $20,200 in home equity, or $10,775 in personal property if you don't own a home. In most cases, you can keep your car, as well.
Bankruptcy is not without its downsides, however. While bankruptcy in itself will not lower your credit score, bankruptcies remain on your credit report for 10 years. It can be extremely tough to be granted credit after a bankruptcy, but it is possible. That decision is up to the lender.
In order to file for bankruptcy, you are required to have enlisted the help of a credit counseling service prior to filing. You also have to consult such an organization after declaring bankruptcy. In addition, there is a fee to file for bankruptcy, and as you might imagine there is a lot of paperwork to do. You may also need or want a lawyer to help you prepare your paperwork, so you must consider those fees as well. Bankruptcy will have very serious repercussions, so make sure to carefully consider all the options and effects before filing.
Is Bankruptcy Right For You? Talk to Bankruptcy Attorneys Free and Confidential. Licensed bankruptcy attorneys are available. Attorneys will call you to discuss your case for free. Find out if bankruptcy is right for your situation.
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