Posted on: 30 May 2014Share
Bankruptcy is a legal tool that helps you get your finances back into shape and stops your collectors from hounding you. It needs to be reserved as a final solution to be completely effective in the way you need it to be. But once you pull the trigger and file, it wipes away your eligible debts and helps you keep your money where it belongs: in your pocket. Once you are through with your filing, you are debt-free and no longer have to pay your creditors.
Make Attempts at Debt Resolution First
Before you go through with filing, you should try to settle your outstanding debt. The reason being is that not all debts are going to be wiped away in bankruptcy. Restructuring your outstanding loans or obligations can free up cash, and make life a little easier. Sometimes this may not be possible because you're not making enough money, or your creditors aren't willing to negotiate.
The Different Types of Debt in Bankruptcy
There are different classifications of debt classifications that determine how they are treated during a filing. They are:
- Priority. Is the first to receive payment in any form of bankruptcy.
- Non-priority. Receives payment after all priority debts are paid.
- Secured. Has an asset securing the loan, such as a home or a car.
- Unsecured. Has no asset to secure the debt, and includes credit cards. personal loans and lines of credit.
- Dischargeable. The debt can be eliminated once the bankruptcy reaches discharge date.
- Nondischargeable. Are considered to be nondischargeable due to decisions made by Congress in regards to their eligibility.
The most common types of nondischargeable debts include student loans, certain types of income tax, child support or alimony and court fines. Any debt that falls outside of the nondischargeable classification are eligible for elimination.
Preparing for Filing Bankruptcy
The major reason why you should work on settling your debt beforehand has to do with the complicated process that is bankruptcy. Prior to filing, you have to take a credit counseling class, fill out the means test, and then complete the petition. All of this takes time to accomplish, and it's best to retain a lawyer such as Levi A Brooks for help. Submitting the petition has to be done at the federal district court that covers a Larimer county bankruptcy. Filing in the wrong court district will see your petition rejected and you'll have to start over again.
The Immediate Benefit of Filing
Once your petition is submitted, your creditors are barred from contacting you. You are also barred from making any payments towards your debt for the time being.
This means that the creditors no longer call your phone day and night, nor can they contact you through any other medium. Doing so violates the automatic stay that creditors are put under when you file. Peace returns to your home temporarily, and for good if you receive discharge.
The court does not want you to put money towards creditors when your bankruptcy is active. Making a payment can be seen as a preferential treatment of a creditor. The trustee can do what is known as a claw back. This gets the money back from the creditor and put back into your bankruptcy estate until the trustee decides what to do with it.
Instead of paying your creditors, all of your income stays with you until the bankruptcy moves forward in a Chapter 13, or a Chapter 7 is closed.
How Bankruptcy Eliminates Eligible Debts
At the beginning of a bankruptcy, the temporary stay is put in place. This is a temporary injunction issued by the court against your creditors. If you are granted a discharge, the injunction becomes permanent. It legal binds your creditors from ever contacting you again. In fact, if a creditor violates the stay, you can take them to court and win damages.
These benefits of bankruptcy help you regain control of your life without the distractions that come with being in debt. You can live free from the stress of owing creditors and hold onto your money instead of trying to keep up.