The state bankruptcy laws allow certain assets to be retained after bankruptcy - yes, there are some assets the creditors cannot get to if you know how to protect them! If you know the ropes, you can protect $ thousands from the creditors.
Bankruptcy is a legal process designed to give debtors relief from legal obligations or debts that they cannot pay. The premise is that you are no longer able to pay the debts due to a job loss, over spending, divorce, injury, etc, etc. In accounting terms, your liabilities exceed your assets or you are insolvent and just hanging on!
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Bankruptcy can give you a fresh start, but it will affect your credit rating for years to come. It is not something to take lightly, but should be seriously studied. Take a HARD LOOK at the pro and con section before you decide.
A person should file bankruptcy only if they can no longer make their payments on a timely basis, and is about to lose property or have property attached by the courts. Most people manage to keep their homes and cars if they properly manage the process.
The entire process takes 4-6 months and requires you to provide detailed documentation on income, monthly payments, debt, and asset values for the six months prior to filing. This will include proof of all expenses claimed including utility bills, gas, major entertainment costs, cell phone bills, satellite or cable TV, etc. In essence all the details from your check book or on your credit card statements. They will also require a copy of your latest federal tax return - CAUTION, if it is 2008 and a refund is due, they will confiscate it. Most people hire an attorney for this process at a cost of $1000 to $1500. It is possible to "do-it-yourself", and pay only court costs of about $500. Most people file for bankruptcy only as a last option. Such actions as home equity loans, debt consolidation programs or special deals with creditors are a better option.
PROS
o Eliminate burdensome debt that is making your life miserable - a fresh start.
o Puts an immediate halt to collection efforts, repossessions, civil lawsuits, or foreclosures until the bankruptcy process is complete
o During bankruptcy your driver's license cannot be suspended, you cannot be evicted, and any wage garnishment actions are halted.
o If you are facing foreclosure, bankruptcy may be a better alternative. A person will often be able to rebuild credit and buy a house within 2 years. A re-possession from foreclosure can be more damaging to your credit and government regulations for VA or FHA loans may prohibit your eligibility.
CONS
o A bankruptcy will lower your credit score at least 100 points initially and have an impact for 10 years.
o It's expensive - $500-2000 depending on if you hire an attorney.
o Anyone checking your credit down the road will see the bankruptcy. This can be future employers, insurance companies or creditors.
o It will take some time to restore your credit worthiness - probably years. Initially, all offers will be at high risk rates. This will be discussed in some depth in the final section.
o Not all debt is discharged - such as child support, alimony, taxes, etc (more on this in the process section).
o Only some assets can be retained or considered exempt and then to a limited amount (more on this in the exemptions section).
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