Anyone with huge debt, that is unable to pay will possibly go through that nerve-racking experience of being hounded and harassed by creditors or debt-collectors until he or she makes a forced decision to pay what he or she owes.

Loss of job, reduction in income, an unexpected health problem that requires costly medical treatment, divorce, a natural calamity, etc., are just some of the reasons for people’s sudden inability to pay a mortgage, a car loan and other debts. But the more payments missed only results to the cost of the debt piling up until it reaches an amount that is already quite impossible for the borrower to still settle.

Can a borrower still save himself or herself from his or her seemingly impossible-to-pay overwhelming debts? A “No” will definitely be devastating; fortunately, however, the answer is “Yes,” and the means is a legal one even – Bankruptcy.

In 2010, an estimated 1.53 million Americans filed bankruptcy in various U.S. federal bankruptcy courts. Bankruptcy is a legal procedure wherein a person (or a business) declares inability to make further payments in settlement of his or her debts. It has been allowed by the law to give people (or firms) a fresh start in their financial lives.

In every concern there is a bankruptcy chapter that would be the appropriate solution. Chapter 7 Bankruptcy or liquidation bankruptcy, for instance, is one that requires a debtor to surrender to a court-appointed trustee his or her “non-exempt” assets and properties for liquidation. One task of the trustee is to sell these properties in order to raise the amount needed in paying off the borrower’s creditors. Payment will only be on debts that are non- dischargeable; these include, but are not limited to:

  • Unlisted debts and creditors
  • Most student loans, unless paying these would cause “undue hardship” to the borrower and/or his or her dependents
  • Federal, state, and local taxes which are no more than three years old from the time these first became due
  • Court fees
  • Government-imposed penalties, fines, and restitution
  • Child support and alimony or spousal support
  • Debts resulting from wrongful death or personal injury damages if these are consequences of DUI

Dischargeable debts, on the other hand, include personal loans, credit card loans, medical bills, past utility bills, etc.; the debtor is freed from these debts by the court.

For “non-exempt,” some of the assets and properties that the law has identified under this classification include:

  • Motor vehicles, jewelry and tools used by the debtor in his or her trade or profession – but only up to a certain value
  • Reasonably necessary household furnishings and goods, and clothing
  • Household appliances
  • Pensions, unemployment compensation, social security benefits and a certain percentage of the borrower’s still unpaid but earned wages
  • Compensation for personal injury.
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