|
Bankruptcy
is a federal court process that helps
individuals and businesses repay their
debts under the protection of the
bankruptcy court or wipe them out
completely. When you file for bankruptcy,
an
automatic
stay
goes into effect, prohibiting your
creditors from taking action to collect
the debt without the approval of the
court.
There are different types of bankruptcy:
Bankruptcy Chapter 7 and Bankruptcies
Chapter 11,12 and 13.
Chapters 7 and 13 apply to most of
foreclosure cases.
IMPORTANT!
Many
homeowners facing foreclosure do not
understand how bankruptcy works and they
think they can keep their home and
avoid paying the rest of mortgage by
filing bankruptcy.
This is not true.
You either lose your property in order to
satisfy the debt or you keep the property
if you are in position to make payments.
Below is the explanation.
Bankruptcy
Chapter 7
is known as a liquidation bankruptcy.
In a
liquidation
bankruptcy
you turn your personal property over to
the court, which sells it and uses the
proceeds to pay your debts or court allows
your creditors to repossess your property
(i.e. house). Creditors can no longer come
after you for payment, but the bankruptcy
stays on your credit history for 10 years
and you may be denied credit during that
period. If you are behind in your mortgage
payments, you could lose your house in a
Chapter 7 bankruptcy.
Filing for bankruptcy has very serious
consequences and should not be entered
into lightly. Having your debts erased
does not solve your long-term financial
problems
if you have irresponsible spending habits,
but sometimes it's the only way out of a
crushing financial burden caused by job
loss, medical bills, or other
circumstances that are out of your
control.
Bankruptcy Chapter 13
is known as reorganization bankruptcy.
In
reorganization bankruptcy,
you file a
repayment
proposal
with the bankruptcy court. This bankruptcy
does not
release you from making payments.
You will have to immediately start making
your regular payments
plus
the catch-up payments as described in your
repayment plan. During the repayment
period, the court will place restrictions
on how you can spend money. In many cases,
a set amount will be garnished from your
wages and a trustee of the court will make
the payments to your creditors. This type
of bankruptcy makes sense
only if
you have a regular job with regular income
and are sure you can stick to the
repayment plan. The majority of debtors
never complete their Chapter 13 repayment
plans. Although most people file for
Chapter 13 bankruptcy assuming they'll
complete their plan, only about 35% of all
Chapter 13 debtors do. Many drop out very
early in the process, without ever
submitting a feasible repayment plan to
the court. If you do not expect to be able
to make payments when you file for Chapter
13, then you may be doing more harm to
yourself than simply doing nothing. Not
only you will lose your house to
foreclosure but you will also have
BANKRUPTCY
stamped in your record and it usually
stays there for 7 to 10 years.
You should also consider the fact that,
when you file bankruptcy, any cosigner on
your mortgage automatically becomes liable
for the full amount of a co-signed debt.
If you do not want this to happen, you
should not file or you should make
arrangements with the court for repayment.
The problem is that even debts you do not
want included (such as a loan from a
friend) must be included since the court
does not accept any partiality.
Bankruptcy will not always be accepted by
court.
A judge could dismiss bankruptcy, if it
can be proven that you recently ran up
debt knowing you would declare bankruptcy
(i.e. a vacation charged to your card in
the last 60 days), or you unloaded assets
to a friend, or you have concealed assets
or liabilities.
|
