An individual who declares bankruptcy usually chooses one of two options. Chapter seven bankruptcy seeks to wipe out debts completely in exchange for liquidating your assets. Of course, most people declaring bankruptcy don't have anything worth selling, and their house is probably protected by a homestead exemption in their state. The other major form of bankruptcy is chapter 13 bankruptcy which doesn't try to take any of your assets but only offers a repayment plan.
To many people, bankruptcy seems like a pretty good deal which can provide the solution for a tough situation. However, it's important to realize some of the drawbacks of bankruptcy. Most people know their credit will be severely damaged for the next several years, but they may not realize that some forms of debt are not usually discharged during bankruptcy.
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If most of your bills come from credit card companies, for example, you should be able to eliminate these when filing for bankruptcy. Of course, that assumes that your case is successful, and you'll have to prove to the court that you need bankruptcy based on your income and expenses. (This was made more tedious but still doable by the new bankruptcy reform.)
But what if your debts come from Federal income taxes, overdue child support payments, or student loans? Well, these debts are usually not erased with bankruptcy, so if these are your major problems then bankruptcy may not be any good for you.
For example, student loans are rarely discharged because Congress made sure of this in order to encourage lenders to give out student loans. You have to prove that your situation is really bad, that you have tried your best to make your payments, and that your situation is unlikely to change in the foreseeable future. The details are not actually as clear-cut as you might think, because they're left up to the individual judge's discretion.
So as you can see, deciding whether bankruptcy is appropriate in your circumstances is not simply a numbers game. You have to look at the details since there are many technicalities to consider. This is why getting advice from a bankruptcy lawyer is essential to success. Reading more articles like this one can, of course, also provide much knowledge that can help you in your decision.
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