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Declaring personal bankruptcy may seem like a drastic step to stop debt collectors and the last thing you want to do. However, there are times when it can be your best path out of debt. For example, filing for bankruptcy can be a good idea if you are:
You should always decide whether or not to declare personal bankruptcy with the help of an experienced consumer bankruptcy attorney. The attorney will evaluate your finances to help you determine if there is a way you can avoid filing and will also advise you about whether the federally-required means test qualifies you to file a Chapter 7 debt liquidation bankruptcy or if you must file a Chapter 13 reorganization of debt bankruptcy instead.
The bankruptcy attorney will also explain the filing for bankruptcy process, including telling you about all of the financial information he will need from you to fill out the various bankruptcy forms that must be filed with the court to begin your bankruptcy. The attorney will also help you keep as many of your assets as possible. In bankruptcy, certain kinds of assets are exempt, which means that they cannot be taken from you.
If you file Chapter 13 bankruptcy, you will have between 3 and 5 years to pay off all or some of your debts according to the terms of the debt reorganization plan your attorney will prepare for you. The bankruptcy court must approve the plan and once it does, the court will supervise your plan until you complete it.
Once you've completed your plan, most - but not necessarily all - of your remaining debts will be discharged, or forgiven. However, certain kinds of debts will survive your bankruptcy and so you will still owe them once you are out of bankruptcy. These debts, which are described as being <i>nondischargeable</i>, may include your mortgage, your alimony or child support obligation, most types of taxes, most government funded or guaranteed educational loans, debts you incurred because of fraud, embezzlement or property theft or because you provided false information to the court, debts you owe because you willfully and maliciously injured someone, as well as any criminal fines or restitution you may owe.
If You File Chapter 7
If you file Chapter 7 bankruptcy, most of your debts will be discharged, or wiped out, and your bankruptcy will probably be over fairly quickly. However the same kinds of debts that cannot be discharged in Chapter 13 are also non-dischargeable in Chapter 7 and so you will still owe them.
An important drawback to filing Chapter 7 is that in exchange for having most if not all of your debts erased, you may lose some of your assets – your nonexempt assets. The trustee in your bankruptcy will sell the assets and use the sale proceeds to pay your debts. However, most people who file for Chapter 7, don’t lose anything because they don’t own any non-exempt assets. When you have no non-exempt assets and you file bankruptcy, your case is referred to as a <i>no-asset case</i>.
If you have nonexempt assets that you don’t want to lose, you should file a Chapter 13 instead of a 7. Again, this is something the bankruptcy attorney can help you figure out.