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When filing for bankruptcy, one is stating that he or
she is legally unable to pay any outstanding debts. The intent of
bankruptcy is for the bankrupt to get a fresh start on their life and
financial affairs by having their debts relieved. The courts also help
the debtors repay their debts without having to deal with numerous
hassling phone calls from creditors. During the time that one is under
bankruptcy, creditors are unable to continue lawsuits, garnish wages, or
contact the debtor to demand payment.
What is Liquidation?
Chapter 7 bankruptcy is also known as liquidation. It can be filed by
consumers or businesses and lasts about three to six months. In
liquidation, debts are paid through personal assets. Once a certain
number of assets are taken away, debts are erased. Some assets, such as
household furnishings, clothes, and cars, are unable to be taken away.
These are known as exempt assets. If only exempt assets are owned, one
must file for no-asset bankruptcy. Yet, if one owes money on an exempt
asset, such as a car payment, the debtor has the choice of either having
the creditor repossess that piece of property, or continue to give
payments on that asset while under bankruptcy.
What is Reorganization?
Chapter 13 bankruptcy is also known as reorganization. In this type of
bankruptcy, the debtor must have some sort of income to repay some
debts. Also, his secured debts must be under $922,975 and his unsecured
debts must be under $307,675. This type of bankruptcy helps debtors form
a plan in which to pay back all debts over the course of about three to
five years.
How can one reestablish credit after going
bankrupt?
One can reestablish credit after going bankrupt by obtaining a secure
credit card where credit is based on the amount of security. Also, it is
easier to reestablish credit after going bankrupt than it is to
reestablish credit while having a history of unpaid expenses.
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