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Anyone can have financial difficulties. Sometimes the only recourse a person has is to seek financial relief through the court system. Filing for bankruptcy can help those with debt issues find solutions to problems such as credit card debt, medical bills, and other financial obligations to creditors.
For many, going through the bankruptcy process once is enough to get them back on their feet. These people receive a fresh start and go on to live healthy financial lives. However, for some, perhaps needed financial lessons weren't learned or another new set of hardships befell them and they ended up in dire straits again.
The two most common forms of personal bankruptcy are Chapter 13 and Chapter 7. Chapter 13 bankruptcy is a personal debt restructure. The person filing agrees to create a payment plan and pay creditors a portion of what is owed to them. After the three to five year repayment plan is completed, the court discharges any remaining debt and the person has a fresh financial start. In a Chapter 7 bankruptcy, a person petitions the court to be relieved of all financial obligations. If the bankruptcy is granted a person’s debts are discharged and the person is considered debt-free.
Filing for bankruptcy is a last resort solution for a financial problem and should not be taken lightly. Although most people who seek protection do so because they are incapable of paying their creditors after losing a job, some see bankruptcy as a way to eliminate debt they do not want to pay. To keep people from using bankruptcy to avoid paying creditors, the court system limits how often a person can file for bankruptcy protection. A person can file a Chapter 7 bankruptcy once every eight years. If a person enters into a Chapter 13 payment arrangement and defaults or asks to have it canceled, six years must pass before a person can file another Chapter 13 bankruptcy. The waiting period starts at the time of the initial filing and not at the point of discharge, so a person who has completed a Chapter 13 repayment plan could immediately file for another Chapter 13 or a Chapter 7 bankruptcy almost immediately.
If a person files for Chapter 13, but his financial situation changes making the payments too high, or the person changes his mind and would rather have all the debt discharged, then a person can switch from a Chapter 13 filing to a Chapter 7. When this happens, the payment plan is stopped and the person’s assets are liquidated to pay off creditors. There is no waiting period for this type of filing, but if the Chapter 7 is granted, then the person would have to wait eight years to file Chapter 7 or six years to file a Chapter 13. In the event that the bankruptcy was dismissed, the wait period to refile is 60 to 180 days depending on the state.
Although there is no limit to the number of times a person can file for bankruptcy, with each filing an increased number of assets could not be protected. For instance, in the first filing, two vehicles might have been protected and allowed to be kept. During the second filing, however, the court could decide that only one vehicle is protected and the other vehicle must be sold to pay off creditors. This is another way of trying to discourage people from abusing the bankruptcy system.
Not only is bankruptcy a process that should only be entered into as a last resort, it also should be handled by a legal professional. Bankruptcies can have a myriad of forms and documents that must be filled out and filed on time or the bankruptcy could be in jeopardy. Anyone who is considering going the bankruptcy route should speak with a legal professional about filing options so a well-informed decision can be made.
This article is intended to be helpful and informative. But even common legal matters can become complex and stressful. A qualified bankruptcy lawyer can address your particular legal needs, explain the law, and represent you in court. Take the first step now and contact a local bankruptcy attorney to discuss your specific legal situation.