Bancruptcy Protection May Not Eliminate Debts!
Bancruptcy provides U.S. citizens with the opportunity to reduce or eliminate outstanding debts and obtain a financial fresh start. Statistics show nearly 2 million Americans will file for bancruptcy protection by the end of 2008. Due to the new bankruptcy laws implemented in 2005, a large percentage of Americans who file will be required to repay a portion of their debts through Chapter 13.
Chapter 13 bancruptcy is reorganization of debt and allows consumers to repay over a period of three to five years. Many people file for Chapter 13 in order to stop foreclosure. While it is true, Chapter 13 bancrupty can stop the foreclosure process, it is important to understand that if payments are not made in a timely fashion, the debtor will fail out of bankruptcy.
When debtors file banruptcy to halt foreclosure proceedings, an automatic stay in placed into affect. The stay prevents creditors from moving forward with collection action. As long as the debtor adheres to the repayment plan approved through the court, the stay remains in place. However, if the debtor misses a payment, creditors can petition the court and request the bankruptcy be dismissed.
If bancruptcy is dismissed, mortgage lenders can reinstate foreclosure proceedings where they left off. In other words, if foreclosure would have occurred within five days prior to the debtor filing for bancruptcy protection, the lender can proceed from that point if the court dismisses the case.
Typically, bancrupty proceedings are only dismissed if the debtor fails out of bankruptcy. What this means is the debtor was unable to adhere to the repayment plan. In cases where the debtor has a temporary setback, they can contact their bankruptcy attorney and request assistance from the bancrupty Trustee.
In instances where the debtor is able to get back on track in a short period of time, the Trustee will usually grant temporary modification of the repayment plan. However, if the debtor is unable to adhere to the repayment plan for an extended period of time, the bancrupty judge can order the debtor to file Chapter 7 or dismiss the case.
Chapter 7 bancrupty involves liquidation of non-exempt assets. Typically, assets are sold to repay creditors and any outstanding balance is written off. With Chapter 7, debtors must sell their home and liquidate financial holdings to repay debts.
Prior to filing bancruptcy, it is important to gather the facts and weigh the pros and cons. Bankruptcy has far-reaching effects and can cause severe damage to credit for up to ten years. Many people can obtain similar debt relief by engaging in bancruptcy alternatives such as debt consolidation, debt settlement, credit counseling and budgeting.
We invite you to learn more about bankruptcy and alternatives to bankruptcy in our comprehensive article database. If you are facing bancrupty, contact Simon Volkov to discover what options are available.