Debt Erased In Bankruptcy

Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay its creditors. Creditors may file a bankruptcy petition against a debtor in an effort to recoup a portion of what they are owed or initiate a restructuring. In the majority of cases, however, bankruptcy is initiated by the debtor.

Bankruptcy may be a way for citizens of the United States to wipe their debts clean or reduce their debt to a manageable level. It may not be easy, but sometimes it is necessary. Hiring an experienced bankruptcy attorney can make the road to financial recovery easier and less stressful. The laws and processes are so complicated that unless you have an extremely straight-forward, simple case, you have to have some help.

Bankruptcy can have different affects on debt depending on the particular chapter that is being considered.

There are six types of bankruptcy under the Bankruptcy Code, located at Title 11 of the United States Code:

Chapter 7: Basic liquidation for individuals and businesses;
Chapter 9: Municipal bankruptcy;
Chapter 11: Rehabilitation or reorganization, used primarily by business debtors, but sometimes by individuals with substantial debts and assets;
Chapter 12: Rehabilitation for family farmers and fishermen;
Chapter 13: Rehabilitation with a payment plan for individuals with a regular source of income;
Chapter 15: Ancillary and other international cases.

Under Chapter 13 of the Bankruptcy Code, the debtor must provide the court with his or her repayment plan on all or a portion of the debt. After the plan is approved, the debtor will proceed to pay creditors the amount stated in the repayment plan.

After the debtor has completed the repayment plan, they are entitled to a discharge, but only if three conditions are met: The first two involve ensuring that all prior domestic support obligations are fully paid in addition to receiving certification for completion of an approved financial management course. The last condition states that the debtor must not have received any discharges in any previous bankruptcy cases within a period of time. The period of time depends on the chapter of bankruptcy in which a petition was filed.

Chapter 13 Bankruptcy Law also allows some debtors to receive hardship discharges. The court typically grants a hardship discharge when the debtor cannot meet repayment requirements due to uncontrollable circumstances.

In Chapter 7 Bankruptcy cases, only individuals may receive a discharge. It is known that an individual will receive a discharge for the majority of their debts under Chapter 7 Bankruptcy. Certain debts cannot be discharged under Chapter 7 of the Bankruptcy Code. These include child support and alimony, specific taxes, some government loans such as student loans, and several other debts dealing with legal matters.

Also, a trustee, creditor, or the U.S. Trustee can request revocation of a Chapter 7 discharge under specific circumstances.

Under Chapter 12, the Family Farmer or Family Fishermen Bankruptcy, a discharge will be granted to the debtor upon completion of his or her repayment plan. However, in order for a discharge to take place, the debtor must meet certain requirements set forth by the court. Additionally, debts concerning alimony and child support will not be discharged. There are many other debts that will not be discharged under Chapter 12 Bankruptcy.

There is hardship discharges granted to debtors under Chapter 12 Bankruptcy as well.

In the bankruptcy process, a person's credit report is greatly affected, making it more difficult to qualify for loans. Your debt will be erased, but the bankruptcy will not be, as it remains on the debtor's credit report and other financial records for ten years.

The complexities of bankruptcy law prove a frustrating challenge to consumers who opt to deal with their financial struggles on their own. Especially since recent changes have been enacted in bankruptcy law, it's more difficult than ever to declare bankruptcy without professional legal help.


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