Bankruptcy

Bankruptcy Lawyers Arlington, TXBankruptcy Lawyers Arlington, TX

Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.

What can Filing for Bankruptcy do for me?

Bankruptcy may make it possible for you to eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts.  Among many things, bankruptcy can (1) stop foreclosure on your house; (2) prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed; (3) stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt; and (4) allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe. It is a good idea to discuss all of your options with a bankruptcy lawyer.

Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to eliminate certain rights of “secured” creditors. A creditor is “secured” if it has taken a mortgage or other lien on property as collateral for a loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money on the debt if you decide to give back the property. However, you generally cannot keep secured property unless you continue to pay the debt.

Other types of debts that are not discharged in bankruptcy are certain types of debts singled out by the bankruptcy law for special treatment, such as child support, spousal support, most student loans, court restitution orders, criminal fines, and most taxes.

Types of Bankruptcy

There are four types of bankruptcy cases provided under the law for individuals:

Chapter 7 is known as “straight” bankruptcy or “liquidation.” It requires an individual to give up property which is not “exempt” under the law, so the property can be sold to pay creditors. Generally, those who file chapter 7 keep all of their property except property which is very valuable or which is subject to a lien which they cannot avoid or afford to pay.

Chapter 11, known as “reorganization,” is used by businesses and a few individuals whose debts are very large.

Chapter 12 is reserved for family farmers and fishermen.

Chapter 13 is a type of “reorganization” used by individuals to pay all or a portion of their debts over a period of years using their current income.

Most people filing bankruptcy will want to file under either chapter 7 or chapter 13. Either type of case may be filed individually or by a married couple filing jointly.

How does Bankruptcy affect My Credit?

How does a bankruptcy affect your credit?  There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things any worse.

The fact that you’ve filed a bankruptcy can appear on your credit record for ten years from the date your case was filed, but because bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit.  Generally, your credit score will improve significantly within 18 to 24 months after your bankruptcy discharge.

If you decide to file bankruptcy, remember that debts discharged in your bankruptcy should be listed on your credit report as having a zero balance, meaning you do not owe anything on the debt. Debts incorrectly reported as having a balance owed will negatively affect your credit score and make it more difficult or costly to get credit. You should check your credit report after your bankruptcy discharge and file a dispute with credit reporting agencies if this information is not correct.  If it continues to be incorrectly reported, contact us and we can help get the information corrected.  There are legal consequences for creditors who report debts incorrectly to the credit reporting agencies, and who try to collect discharged debts.

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