What Is Personal Bankruptcy? What Are Reasons to Declare?

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Man holding out empty pocketIs Personal Bankruptcy the Solution to your Financial Problems?

Filing for personal bankruptcy can help you manage your debts if you owe more than you can pay. Deciding whether or not to declare bankruptcy is a personal decision, but it is a perfectly legal way to manage debt.

When making your decision, think about how much you owe, the type of debts you have, your current income, the amount of your savings, and how you could pay off your debt if you do not declare bankruptcy.

Why Declare Bankruptcy?

People declare personal bankruptcy for various reasons. Many people file for bankruptcy because of medical bills that pile up after an injury or illness. For others, it's being fired or laid off that makes it hard to keep up with mortgage and car-loan payments. The birth of a child or the death of the main wage-earner can also affect the ability to pay your bills.

How Personal Bankruptcy Works

People can file for personal bankruptcy in one of two ways. Chapter 7 is meant for people who have large amounts of debt and low income. You must give up much of your property under Chapter 7, but most of your debts will be wiped out. If you make enough money to repay at least some of your debts, on the other hand, you may be able to file under Chapter 13. As long as you make the agreed-upon payments for three to five years, you should be able to keep your belongings.

Bankruptcy and Dischargeable Debts

Declaring bankruptcy can help if you have what is known as dischargeable debts. These are debts like credit cards, medical bills, old taxes, personal loans, or court judgments. However, some types of debts don't qualify. Past-due child support, alimony, recent taxes, and student loans are not dischargeable. The rules differ somewhat between Chapter 7 and Chapter 13 filings.

Bankruptcy Protection from Collectors

When you file under Chapter 7 or Chapter 13, the court immediately orders creditors to stop contacting you about your debts. This is called an automatic stay, and it means creditors can't contact you, repossess your car, foreclose on your house, shut off your utilities, or harass you. This automatic stay does not cancel the debts, but it gives you some relief from the stress of having creditors hound you for money.

A Personal Bankruptcy Lawyer Can Help

The law surrounding personal bankruptcy is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a bankruptcy lawyer.

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