Eliminate Your Money Problems

Although bankruptcy helps eliminate some debts, it can’t eliminate them all. Before filing for bankruptcy, make sure the debts you are filing for can actually be eliminated by it.

Credit Card Debts

Credit card debts are wiped clean by a bankruptcy claim. Your credit card balance is unsecured debt i.e. the creditor (the bank) cannot claim any of your property or any of the items bought on the credit card. The concept of bankruptcy was designed to wipe such debts.

Informal Debts

Other unsecured debts include informal debts i.e. the loans given to you by your friends or family, medical bills, utility bills, bounced or dishonored checks (this option is only valid if these checks are not involved in any fraud cases), business debts, rent and tax penalties and unpaid tax.

Lien & Tax Debts

Bankruptcy can stop creditor harassment and eliminate certain kinds of liens. Lien is a creditor’s right to take your property, but these claims might survive bankruptcy if certain procedures are not invoked during the bankruptcy case. Tax debts are rarely ever eliminated from the bankruptcy case, but in some very rare cases, old unpaid tax debts are exempted. However, many requirements have to be met before requesting the elimination of tax debt.

Debts Bankruptcy Cannot Remove

The debts that you forgot to mention in your bankruptcy papers and fines or penalties invoked for breaking a law are not eliminated by bankruptcy. These debts will still have to be paid in the case of chapter 7 bankruptcy. However, in the case of chapter 13, these debts will be added to a repayment plan and will be paid alongside your other debts.

Although it might seem that the debtor has all the good cards in his hands, it is not quite true. A creditor can convince the judge to make sure his debt survives bankruptcy, and the debtor will have to pay it even after the bankruptcy proceedings. These debts usually include loans from debt consolidation Merritt that were gained by fraud such as by lying on your credit application or passing a rented property as your own.

Chapter 13 or Chapter 7?

Some of the cases mentioned above can be avoided if you decide to file for chapter 13 bankruptcy. You won’t have to pay your house loan installments without leaving the property. The remaining installments can be paid using a new repayment plan, which even allows you to reduce some of the interest on the debt. For example, if you have a debt of 150,000 but your initial loan was 100,000, the extra amount i.e. the interest can be exempted. The only problem with following this plan is that you have to show the judge that you have enough income to go through with the repayment plan. Chapter 13 is the way to go if you don’t want to lose your assets as it gives you a plan to follow so that you can repay your debts in 3 to 5 years.

Using chapter 7, the debtor’s assets can be confiscated to pay off the creditors and the debtor is given a chance to start a new life without being indebted.

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