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Business & Commercial Law : Estate Planning & Litigation : Bankruptcy

Bankruptcy filing basics

On Behalf of | Jul 31, 2022 | Bankruptcy

Not everyone understands what bankruptcy involves, which could be troubling for a person struggling with heavy debt. Bankruptcy laws exist to protect people from aggressive collection actions while allowing them a legal option to address an untenable debt situation. Massachusetts residents could become unable to meet creditor obligations and struggle to pay for life’s necessities. Filing for bankruptcy could present a viable solution.

Examining bankruptcy laws

Bankruptcy becomes an option for people whose debts exceed their assets. Now, the individual could earn a decent income and have some assets, but a debt situation might make the person insolvent. Excessive medical bills and unemployment are two reasons that someone may fall into a heavy debt trap. When the debtor cannot overcome the situation, bankruptcy laws could provide a solution.

Those interested in personal bankruptcy have two options: Chapter 7 and Chapter 13. With Chapter 7 bankruptcy, non-exempt assets face liquidation to pay some debts. The debtor would then receive a discharge from some unsecured debt, meaning that the debtor is no longer responsible for paying.

Chapter 7 eligibility requires passing a means test. Those who do not pass the means test may explore options for Chapter 13. Chapter 13 involves sticking with a three- to five-year payment plan to pay the non-discharged debt. Some debt would likely receive a discharge.

Bankruptcy offers a fresh start

Filing for consumer bankruptcy allows the debtor to find a solution to an impossible fiscal situation. Once bankruptcy proceedings end, the debtor has a chance at a fresh start. The bankruptcy court might mandate financial management courses, and these lessons may help someone avoid problems in the future. Otherwise, debt problems might return after the initial bankruptcy concludes.

Following all rules and making necessary payments is critical while in bankruptcy. Otherwise, the judge could dismiss the case, and collection action resumes.