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From Executive Director
We can write all about the laws and rules of bankruptcy Chapter 7 and Chapter 13, but what most people want to know is “What are the benefits of bankruptcy?”
The benefits of bankruptcy can be summed up in “peace of mind”. Well, the phrase “peace of mind” may be an overstatement, but bankruptcy really can get rid of a lot of your stress.
There are 2 main ways that bankruptcy Chapter 7 and Chapter 13 reduce the stress on you and they are the main benefits of bankruptcy: (1) bankruptcy gets rid of certain debts and makes it easier for you to pay your living expenses, and (2) bankruptcy stops creditors and bill collectors from contacting you.
First, lets look at how bankruptcy gets rid of certain debts and makes it easier for you to pay your living expenses. Whether you file Chapter 7 bankruptcy or Chapter 13 bankruptcy, if you successfully complete the bankruptcy, your unsecured debts such as credit cards, medical bills, unsecured personal loans, and judgments will be discharged. And discharge means that you do not have to pay the debts. Since you do not have to pay these debts, you have more money with which to pay your living expenses.
With a Chapter 13 bankruptcy, you can catch up over time with any arrearage that you have on secured debts such as house payments and car payments. For example, if you are two months behind on your mortgage payment, you will not be required to pay the two months in a lump sum, but will be allowed to pay a little each month until the two month arrearage is paid. When the bankruptcy is over, you will be current the payments. Not having to pay the arrearage or make payments on unsecured debt means that you will have more money to pay your living expenses.
Remember, bankruptcy was created to give people a fresh financial start and it does that by eliminating certain debts and allowing you to focus on current living expenses and starting over.
Next, lets look at how bankruptcy stops creditors. There is a present and future aspect to this.
Regardless of whether you file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, as soon as you file bankruptcy, by law, there is an automatic stay (stopping) of most collection actions including most civil lawsuits. And this automatic stay is effective immediately upon filing bankruptcy. This means that when you file bankruptcy, most of your creditors and bill collectors must stop all of their actions to contact you or to try to collect money that they believe that you owe them. In other words, creditors have to stop calling you.
Creditors may ask the bankruptcy court to lift the automatic stay allowing them to proceed with civil court actions, but the creditors can not do anything until the stay is lifted. While a bankruptcy court will generally lift the automatic stay so that a mortgage lender or a auto loan lender may pursue foreclosure or pursue a car repossession in court, the bankruptcy court is unlikely to lift the stay for an unsecured creditor to pursue collection.
The future aspect of this is that, once you have successfully completed bankruptcy Chapter 7 or Chapter 13, your unsecured debts are discharged and you should be current with secured creditors, so there is no need for creditors or bill collectors to contact you.
As you see, you can immediately begin to enjoy the benefits of bankruptcy as soon as you file. But, if you do not successfully complete a bankruptcy, your creditors and bill collectors may resume their actions to collect and you will not continue to enjoy the benefits of bankruptcy.
This is general information only. If you have any questions whatsoever, talk with a lawyer licensed in your state who has experience with Chapter 7 bankruptcy, Chapter 13 bankruptcy, or bankruptcy in general.
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