Being faced with debts that have become very hard to manage can make life definitely stressful and worry-filled. Inability to pay monthly bills due to major changes in financial situation can only be doubly troublesome for, besides the accruing amount of bills, there are also the interests or late fees that worsen the financial sting.

It usually takes about three successive months of non-payment before an account is tagged as bad debt and the debtor given negative credit. But with the debt crisis at hand, having negative credit would most probably be the least worry the debtor will have. The major concern is how to settle all debts and get back on good financial track again.

One of the means is bankruptcy, the legal process wherein an individual or a business declares inability to make further payments in settlement of debts. There are two major types of bankruptcy: liquidation and reorganization.

Chapter 7, one of the chapters in the bankruptcy law which is a liquidation bankruptcy and the one most commonly filed, requires the debtor to surrender all of his/her “non-exempt” properties for liquidation (if he/she runs a business, this will need to stop operations as its assets will have to be sold). A court-appointed trustee, who takes charge of the liquidation process, then pays all creditors with the amount earned from the sold properties. Despite the probable small amount they may receive, the creditors have no option but to accept; they should also abide by the court’s decision to have the debtor’s remaining balance forgiven and no longer be collected, lest they suffer severe penalties under federal law.

The debts that need to be paid in chapter 7 are only those categorized as non-dischargeable debts. Debts that can be discharged, like past utility bills, personal loan from family, friends, or employer, medical bills, and, most especially, credit card charges, are automatically discharged by the court with order to the creditor to cease any form of collection from the debtor.

Chapter 7 bankruptcy can be a complex legal procedure. Besides evaluating properly first (with the help of a competent bankruptcy lawyer) if this is really the chapter to file, or if there even really is a need to file it, the debtor will also have to take a means test, which is meant to determine if his/her salary falls within the limit set under this specific chapter. The wisest move a debtor could make, according to the website of Ryan Ruehle, in connection with filing a chapter 7 bankruptcy, is to do it only with the help of a lawyer highly-competent in the bankruptcy law.

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