How Does Bankruptcy Work

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Bankruptcy is a Very Powerful Government Program

Bankruptcy is not a last resort, but a financial planning tool

Bankruptcy is not a last ditch effort to be ashamed of doing.  Using the bankruptcy laws to your advantage is the smartest way to get your life back after finding yourself in a bad situation.  Anyone who says bankruptcy is shameful has either never been in a situation like yours, or does not know how to get out of it.  You are smarter than that.  You use your resources, even if it is called bankruptcy.

There are Two Types of Personal Bankruptcy

Chapter 7 Bankruptcy

Chapter 7 is the most typical bankruptcy.  This is the bankruptcy you probably think about when you think bankruptcy.  It is the traditional bankruptcy where you do not have to make payments to the court, and you keep all of your stuff, while getting rid of your dischargeable debt.  You have to qualify to do this form of bankruptcy, and about 90% of people do.  This is usually the best choice, if you can do it.

Chapter 13 Bankruptcy

Chapter 13 does not mean you simply repay your debt to the court.  Chapter 13 bankruptcy is used by people who earn too much money to do a chapter 7, or by people who are behind on secured payments, like a home.  A bankruptcy petition is filed, just like a chapter 7, but in addition, there is also a plan filed that will suggest a number of payments to the court.  The payments can be as fe as 36 payments, and the amount of the payment can be very low.  At the end of the payments, the rest of the debt is discharged, just like a chapter 7.  Chapter 13 bankruptcy is far from a repayment plan.  It is a skilled tool in financial management.

Chapter 13 Bankruptcy and Student Loans

Student loan companies have started to garnish paychecks.  This is a dirty trick.  The law gives student loan collectors the right to garnish without even getting a judgment.  Student loan collectors have more rights than regular creditors.  They have more rights than anyone besides the IRS.  Since student loans cannot be discharged in bankruptcy, how can bankruptcy help with student loan garnishment?

Filing chapter 13 bankruptcy will immediately stop student loan garnishment.  The student loans cannot be discharged, but they cannot collect more than you have to give while you are in bankruptcy.  The bankruptcy payments can be stretched out for up to five years.  During this five years, the student loan collectors have to take what the bankruptcy court says.  The bankruptcy court will not let them take more money that you have to offer.  Therefore, chapter 13 bankruptcy is a brilliant way to manage student loan repayment.  It is especially useful if student loans garnish a large part of your paycheck.  In chapter 13 bankruptcy, the student loans cannot garnish, and they have to take what you can afford, for up to five years.  Find out more.