Filing Chapter 7 bankruptcy is not the easiest way to get out of your debts and therefore you should know the following facts about it.
1. Of course, all your debts will be cleared off after filing Chapter 7 bankruptcy but all your non-exempt assets will be liquidated to pay debts of the creditors. Therefore, you should check what constitutes as non-exempt assets in your state. Generally, it includes vehicles, houses, jewelry, bank accounts, stocks, etc. All this goes to a trust and the assets are sold to settle your debts. If the amount is insufficient to pay off the debts, the rest of the debts are waived off. This type of bankruptcy is most suitable for people who hardly have any non-exempt assets as they are the ones who are most benefited through this proceeding.
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2. Some debts are not exempted even after filing Chapter 7 bankruptcy. These debts include student loans, taxes, and obligations resulting from divorce or child support. Therefore, if a big portion of your debt is a student loan, then it will not be waived through Chapter 7 bankruptcy.
3. The process of filing Chapter 7 bankruptcy is complicated. Since the process helps people escape paying their debts, there are strict procedures and eligibility criteria for it. The court goes through every case carefully to determine whether the application should be accepted or rejected.
4. People with good income may not be given such benefits. If they want to file for bankruptcy, they have to do so under Chapter 13. Moreover, people involved in unlawful activities may not be entitled to file for Chapter 7 bankruptcy.
5. The applicant has to undergo credit counseling, which is mandatory.
6. The process may take around six months to complete. You may need the help of a bankruptcy lawyer in order to do all paperwork and present your case effectively.
7. You can file for this bankruptcy only once in six years. If you develop the same debt situation again, Chapter 7 bankruptcy would not come to your rescue until six years has passed since you filed your last bankruptcy.
8. Once a person is bankrupt, it gets difficult for him to get loans. Even if he is able to get one, he will have to pay high interest rates on it.
A person should consider filing Chapter 7 bankruptcy as the last resort in a situation where he is not able to pay his debts. Though it would help to clear almost all debts, it does have serious repercussions on your credit rating that will affect you in several ways in future.
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