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If a person declares bankrupty, what happens?

Mell

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I know little about economics, so would somebody who does know, explain how it works.

How does it effect a persons life and finances?
 

phattonez

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You will no longer be obligated to pay back your debts while still being able to retain the property, but you won't be getting any kind of credit for about 7 years. This is chapter 7 bankruptcy.
 

Mell

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You will no longer be obligated to pay back your debts while still being able to retain the property, but you won't be getting any kind of credit for about 7 years. This is chapter 7 bankruptcy.
Thanks for the info. The conditions of bankrupty dont seem too harsh. Makes me wonder why those who have declared bankrupty complain so much about how they cant do anything because of it.
 

liblady

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You will no longer be obligated to pay back your debts while still being able to retain the property, but you won't be getting any kind of credit for about 7 years. This is chapter 7 bankruptcy.
sort of. you can attempt to keep your home and car, and continue to pay for them. those debts can only be written off if you give them up. bankruptcies are on the credit systems for 10 years, but you can refile in 7 years. you can get credit, but at very high rates.
 

phattonez

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Because they don't want it to affect their credit score. That bankruptcy is on your record for about 7 years. That's about 7 years of pretty much no credit available to you.

EDIT: Make that 10 years then.
 

Mell

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If you had already payed off the loans for your home and car, and wanted to declare bankrupty because you had some unexpected expense, such as you are stranded in another country and have to be air lifted out, at a cost of 150,000 US, would the bankrupty declaration allow you to keep your home and car?

I read in the news about a guy who was mountain climbing in Columbia. He is now in hospital there with a spinal injury. His father is appealing to the public to donate towards the over 100,000 it would cost to fly him back to England, by air ambulance. He had no medical insurance. Couldnt he just get back to England at that cost, and then declare bankrupty. Or would he or his parents lose everything they have to pay the debt? Getting home and declaring bankrupty seems like the sensible option, because it may take a lot time to get the money together to get home otherwise.
 

rivrrat

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You will no longer be obligated to pay back your debts while still being able to retain the property, but you won't be getting any kind of credit for about 7 years. This is chapter 7 bankruptcy.
Because they don't want it to affect their credit score. That bankruptcy is on your record for about 7 years. That's about 7 years of pretty much no credit available to you.

EDIT: Make that 10 years then.
Not true, actually. You'll actually be inundated with credit card applications. Most of them will require a deposit of some kind, but after that initial period is over (usually 90 days - 6 months), you'll get limited, unsecured credit that gradually increases. Every bankruptcy lawyer will tell you that the BEST thing you can do after declaring bankruptcy is to get a credit card, use it regularly for something small like weekly gas or something, and pay it off entirely every month.

I also bought a car within the 7 year time period. And had about 4 visa/mastercards and a Dell credit card, a Nautilus credit card, and a Care One Credit card.

If you had already payed off the loans for your home and car, and wanted to declare bankrupty because you had some unexpected expense, such as you are stranded in another country and have to be air lifted out, at a cost of 150,000 US, would the bankrupty declaration allow you to keep your home and car?

I read in the news about a guy who was mountain climbing in Columbia. He is now in hospital there with a spinal injury. His father is appealing to the public to donate towards the over 100,000 it would cost to fly him back to England, by air ambulance. He had no medical insurance. Couldnt he just get back to England at that cost, and then declare bankrupty. Or would he or his parents lose everything they have to pay the debt? Getting home and declaring bankrupty seems like the sensible option, because it may take a lot time to get the money together to get home otherwise.
I don't know the rules in the UK, but this is how it worked when I declared bankruptcy.

If my vehicle was my only means of transportation to and from work, they could not take it. If I had a home (which I didn't at the time), they could not take it. They COULD force me to downgrade my home, however. As in, force a sale of the "extravagant" home and a purchase of something less expensive.

At the time I declared, I was still paying for my truck. I did NOT include it in the bankruptcy. What that meant was, I continued making payments as usual and it was not listed in the bankruptcy documentation. Since I didn't technically *own* it, it wasn't an asset.

So no, they would not necessarily lose anything. It just depends on the circumstances.
 

justabubba

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i retired prior to the rewrite of the newest bankruptcy provisions, so accept this to be worth what you paid for it

it is my understanding that debtors who file for bankruptcy must now attend a credit counseling class prior to filing their bankruptcy petition. in addition to providing credit expertise, that forced delay stems some of the last minute bankruptcy filings which were prevalent before the revision of the bankruptcy rules
expect to pay for the class (a court approved private contractor will conduct it)
expect to pay for the filing of the bankruptcy petition
and expect to pay dearly for a good bankruptcy attorney
you have to have some money to go broke these days

you will be allowed a personal exemption for your equity in the home, household goods, jewelry, auto and tools of one's trade. the exemption varies, depending on what state your filing occurs. the state exemptions are usually better for the debtor than the standard federal exemptions. for instance, in my state, an individual can claim $35,000 home exemption, and if the spouse also files that would be another $35,000, to exempt that total $70,000 from the debt owed. but to maximize and properly determine the personal exemptions is one good reason to employ excellent counsel - experienced in bankruptcy law! - to guide you thru the process

if one has continuing income, they may have to file a chapter 13 bankruptcy instead of chapter 7. the difference is significant
under chapter 13 the debtor will be obligated to pay a set amount to the court each month, which amount is then disbursed to the creditors in whatever manner the bankruptcy judge has decreed. this payment plan is usually three to five years, and only after that period will your debts be discharged
in contrast, under chapter 7, it will be a matter of months
again, you should see why it is important to have competent counsel to coach you thru these matters

finally, should both spouses file? that may also depend on the state in which the bankruptcy is filed. in my own state, where there is ownership in property by the entireity, if one spouse has filed for bankruptcy, that alone prohbits any foreclosure action on the real property they jointly own. the creditor is "stayed" from pursuing any foreclosure action. you can see, one of the spouses gets to preserve their credit history intact if such a selection is made
there are community property states, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, where other than real estate transactions, the credit incurred by one spouse automatically flows to the other spouse, even if they were without knowledge of the debt. in those states, eliminating a spouses participation in the bankruptcy may not yield a beneficial result

it's an arcane process, requiring sound counsel to make the best of it

i am not a practicing attorney and cannot provide legal advice
but given the scenario you provided, that the couple own a home unencumbered by debt, there may likely be much better ways to secure their home than thru bankruptcy

that debt incurred for medical reasons may soon be placed for collection, but if the couple transfer their property to their children and take a life estate interest in it, they could reside there until they die, without complications. if they would need to sell and move, that complicates things. a living family trust might be considered as a place to put at risk assets before a creditor could place a judgement against them and then proceed with the process of levy to collect against those assets. no two situations are alike. knowing so little prevents me from considering the variety of possibilities available to them

hiring a smart attorney is the wisest - and likely cheapest - course of action ... look for one with the reputation of a junk yard dog within the legal community
 

phattonez

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Thanks rivrrat, that makes sense. The best way to restore your credit is to start using credit responsibly.
 

amyk629

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The following is not legal advice:
I would first try writing a letter to your creditors stating that you have insufficient funds to pay off the debt or contribute minimum monthly payments. Then do not contact them unless you hear back from them. Many creditors will stop sending you bills and write it off that you are unable to pay the debt. I would file bankruptcy as a last resort.
 

Harry Guerrilla

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I know little about economics, so would somebody who does know, explain how it works.

How does it effect a persons life and finances?
When you start bankruptcy proceedings, that puts a stop to all collection efforts on any debt you owe (you have to inform the creditors, that call, that you are filing bankruptcy).
You must file the paperwork which lists all the debts you want set aside in your bankruptcy.

Secured debt that you want written off must have the underlying property transferred to the creditor like cars, your home etc.
Although you can affirm those debts by signing a reaffirmation agreement.

What is allowed to be discharged is also based on your income, if your income is to high the court may make you pay some of it back via a chp 13 debt reorganization plan.
Otherwise, the debts will be discharged.

Contrary to popular belief, you can get new credit almost immediately after the court discharges your debts.

The bankruptcy stays on your credit report for 10 years.
 
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Harry Guerrilla

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If you had already payed off the loans for your home and car, and wanted to declare bankrupty because you had some unexpected expense, such as you are stranded in another country and have to be air lifted out, at a cost of 150,000 US, would the bankrupty declaration allow you to keep your home and car?

I read in the news about a guy who was mountain climbing in Columbia. He is now in hospital there with a spinal injury. His father is appealing to the public to donate towards the over 100,000 it would cost to fly him back to England, by air ambulance. He had no medical insurance. Couldnt he just get back to England at that cost, and then declare bankrupty. Or would he or his parents lose everything they have to pay the debt? Getting home and declaring bankrupty seems like the sensible option, because it may take a lot time to get the money together to get home otherwise.
Yes, in most instances you can keep your car and home.
Outside of something ridiculous like a Rolls Royce and a Mansion you can't afford, it's counted as "tools of the trade" which is how you earn an income.
 

Ahlevah

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sort of. you can attempt to keep your home and car, and continue to pay for them. those debts can only be written off if you give them up. bankruptcies are on the credit systems for 10 years, but you can refile in 7 years. you can get credit, but at very high rates.
And if you owe on a government-guaranteed loan like a student loan don't expect to skate out of that. Uncle always gets his due in the end. Also, not everyone can file Chapter 7. There's a means test for individuals.
 
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Ahlevah

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it is my understanding that debtors who file for bankruptcy must now attend a credit counseling class prior to filing their bankruptcy petition.
You can take the "class" online. Basically, the prospective bankruptcy candidate fills out a bunch of documentation online outlining assets, income, and secured and unsecured debts. A counselor revues the information, responds with a letter that basically says, "Yeah, you're screwed" and then e-mails you a certificate that you can take to a bankruptcy attorney. I only know this because I helped a coworker who's filing Chapter 7 complete one of these interviews.
 
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