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Bankruptcy is a Federal law that allows and individual or business to eliminate debt and/or re-organize debt. In 2005, the Bankruptcy laws changed, but individuals or business can still file for bankruptcy protection.
Bankruptcies are called Chapters. There are five different chapters: Chapter 7; Chapter 9; Chapter 11; Chapter 12 and Chapter 13. Most individuals file either a Chapter 7 or Chapter 13.
A Chapter 7 Bankruptcy allows debtors to eliminate most debts. A Chapter 13 Bankruptcy allows debtors to re-organize debts so a debtor can make payments on part or all of the debt depending on the debtors ability to pay. With either Chapter an automatic stay goes into effect upon filing prohibiting creditors from having direct contact with the debtors.
Whether an individual files a Chapter 7 or Chapter 13 is determined by a debtors income and expenses. Both Chapters can stop garnishments, suits and foreclosures.
Usually, a debtor has minimal time in Court. The process is simple, but it does require paperwork and documentation. Should you file a Bankruptcy, you will have to provide the following, if applicable:
- Deed and Mortgages to real property
- Vehicle titles
- Boat titles
- Mobile home or motorhome titles
- Pay advices (6 months)
- Bank statements (6 months)
- Credit card statements (6 months)
- Copies of active lawsuits
- Copies of any divorce decrees or child support orders Tax returns (last 3 years)
- Copies of stocks, bonds or retirement funds
Additionally, anyone who files Bankruptcy must now take a credit counseling course before filing. It has to be completed after filing.