Rising debt, downfall in income and loss of assets, these are terms that would scare the hell out of the citizens of the United States at any point of time but do people save themselves from such situations anyway? Unfortunately, it is too late by the time you realize that your savings did not justify your expenditure and the consequent debt was unmanageable. But then, the government does not let you lose hope and lends you your last resort in the form of bankruptcy filing. Although, not a pleasant procedure, this is essentially your superman that saves you from drowning in the debt quicksand. People have to understand the bankruptcy law basics first in order to file one. There are chapters of bankruptcy that can be filed depending on how deep you have been stuck in debt puddle and the kind of arrangements you can or cannot make to repay the loan.
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The two major chapters that fall under the US bankruptcy law are the Chapter 7 and Chapter 13. Let's go through each of them to truly understand which one you ultimately require to go with.
Chapter 7:
- It concerns with the liquidation of assets.
- You are generally asked to file this chapter under US bankruptcy law when you have very few or no assets.
- This can be filed when you have low or no income and the debt you are in is huge.
- Depending on the individual state laws the assets you get to keep will differ.
- You can file this only once in 6 years
- In some states you may even retain your movable and immovable assets provided you make payments after the chapter 7 has been filed. (you must ensure this comes under your state law)
- There are cases wherein you may not be eligible to file for this chapter in bankruptcy and those are instances where your debt includes most student loans, child support, alimony, criminal fees, and debts taken on fraudulent grounds, penalties and restitution, liabilities due to civil offence like drunk driving and so on.
- This bankruptcy filing has major adverse effects on your credit scoring than any other type of bankruptcy filing. However, in due course of time this impact on credit ratings can diminish if you can completely revive your financial situation.
Chapter 13:
- Unlike Chapter 7 you do not end up losing your financial and property assets.
- You are entitled to get the interest rates on your car or mortgage loans reduced or temporarily halt foreclosures and collection of debts.
- This type of bankruptcy gives you a stipulated time period to restructure your finances and start afresh by delaying the repayment of loans.
- You can be free of certain tax liabilities; this again depends on a multitude of other factors related to it as well as the local laws.
- There are limits to the amount of debt you can have in Chapter 13.
- Creditors can object the filings at any time
- This chapter is less damaging on the credit score
There are other chapters like Chapter 20 and chapter 11, but these are the major ones that fall in the personal loan category and one need to understand these laws as it applies to the particular person. This can only be done under the guidance of a competent bankruptcy filing lawyer. This is no issue to be taken lightly and with just the right steps towards filing a bankruptcy and obtaining the most out of it to restructure your finances in future you must take legal advice from a professional.
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