What Is Bankruptcy?

Individuals and businesses who are having trouble paying their debts may consider filing for bankruptcy as a remedy for their situation. In the most general terms, bankruptcy is a legal proceeding whereby an individual or married couple attempts to obtain a discharge, which will wipe out some or all of their debts and at the same time protect their home, vehicles, personal property and wages.

What Is A Discharge?

A discharge is a court order that releases you from personal liability for paying your unsecured debts (that is, those debts that are not specifically attached to your home, vehicles or furnishings). This is typically granted once a bankruptcy case has been completed. Creditors are prohibited from attempting to collect on any debts that have been discharged through bankruptcy. This means that they cannot contact you, harass you, sue you, get a judgment against you or try to take any of your property (including wages) once their debt has been discharged. In fact, if a creditor attempts to do any of these things after being notified of your bankruptcy, it may be sanctioned (punished) by the court.

Although most unsecured debts can be discharged through bankruptcy, some cannot.

Some examples of these are as follows: most taxes, child support and alimony, student loans, court-ordered fines and criminal restitution penalties, debts obtained through fraud or deception, and intentional personal injury debts. Further, secured debts (that is, those debts that are specifically attached to your home, vehicles or furnishings) can only be discharged if the property is surrendered to the specific creditor.

What is the difference between Chapter 7 and Chapter 13 bankruptcies for individuals?

While most people are familiar with filing a Chapter 7 Bankruptcy to discharge all their debts immediately, sometimes a Chapter 13 is more strategic and provides for better options.  The Chapter 13 allows you to propose a "restructuring plan".  This provides the opportunity to cure secured debt issues, address IRS problems, stall student loan issues and generally provides for options that a Chapter 7 simply does not allow.  There are even some debts that may be discharged in a Chapter 13 that would not be  discharged in a Chapter 7.

Can Chapter 13 Bankruptcy Really Help Me Save My Home?

Yes. In fact, Chapter 13 is often the best way to save a home that is currently in foreclosure. It is important to understand that you own your home up until the time that it is actually sold at a foreclosure sale (which occurs at the very end of a foreclosure lawsuit). This means that the property may be saved by filing Chapter 13 bankruptcy any time before the actual sale. The Chapter 13 bankruptcy will then allow you to catch up on your average (that is, the local amount that you are behind on your mortgage) by breaking it up into monthly payments divided over the length of your plan (that is, from 36 to 60 months). Even a very large average can become manageable when it is broken up into many, much smaller payments.

What Is A Credit Score?

Your credit score is a three-digit number generally relied upon by lenders to determine how good (or bad) a credit risk you are. Traditional credit scores range from 300 to 850. Each of the three major credit bureaus — Experian, Equifax and TransUnion — calculates these scores a little differently, so the score that you receive from one credit bureau may not match one requested by a lender from another bureau.

To further complicate the understanding of credit scores, the three major credit bureaus recently joined forces to develop a new scoring system, known as the Vantage™ Credit Score. The Vantage™ score is calculated on an entirely different scale, with the highest potential score being 999.

This variation may make it difficult to know what a score means. When you talk with a lender, make sure you know which credit score the lender will be looking at.

Although the exact numbers will differ from agency to agency, and even the scale may differ if the Vantage™ score is used, the factors that determine your credit score are fairly consistent and predictable.Type your paragraph here.

How does Bankruptcy impact my Credit Score?

A Credit Score is an artificial indicator of how well you pay your bills.  It does not provide any insight into whether you have the credit worthiness, or even the cash flow to address debt.  Bankruptcy provides relief from your debts, and ironically provides a pathway to dramatically improve your score.  Why?  Because Bankruptcy eliminates all of your debts and makes you a much better credit risk.  Most people see substantial improvements in their credit score within nine to twelve months of discharge.  AND NO IT DOES NOT AFFECT YOU FOR THE NEXT EIGHT TO TEN YEARS!

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