06 Aug

Many people think filing a bankruptcy is a horrible thing.  Quite the contrary.  Bankruptcy is a very effective tool for helping people who are in trouble.  A Chapter 7 Bankruptcy allows a person to discharge all of their debt and start a new financial life.    For people who want to discharge debt (credit cards etc.) but keep a house, or car on which their is a secured loan, a Chapter 13 Bankruptcy is filed.  Chapter 13 allows the arrears on secured debt to be repaid over a span of time.  Depending upon the amount of the arrears, and depending upon the income of the person, the period may be up to 60 months.  

The secured creditor (usually a mortgage company) has no option but to allow the Chapter 13 if all conditions are met.  

The debtor also has exemptions.  A person can file a bankruptcy yet still keep certain items.  For example, the homestead exemption allows a person to keep $25,150.00 (or a couple $50,300.00) of the equity in their home.  If the home has equity of $50,300.00, and the couple is able to pay into a Chapter 13 plan, not only do they keep the house, but they also can discharge unsecured debt (credit cards etc.)  If there is a second mortgage, and the fair market value of the house is equal to, or less than the first mortgage, the second mortgage can be discharged as well.

Most creditors look to see how well the debtor performed for 2 years after receiving the discharge and extend credit as if a bankruptcy was never filed.  The bankruptcy will stay on your credit report for 7 years.

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