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How Can Filing Bankruptcy Help With Creditors?

Experienced Attorney

Debt is something that can be hard to dig out. Sometimes it seems like a never-ending cycle of interest rates, penalties, late fees and eventual collectors. While you have contemplated debt consolidation, bankruptcy may be the better route. What does bankruptcy do, and where does the debt go? Consider some of these basics when thinking about a bankruptcy filing.

Bankruptcy Stops Collections

One of the worst parts about being in debt may be the constant barrage of phone calls from debt collectors. You try to reach a reasonable solution, things fall through, and you’re back to square one. The number of calls you receive borders on harassing. Filing for bankruptcy puts an immediate stop on collection activities. Creditors must stop trying to contact you directly. They do not go away, however, and will be able to try and get paid in court.

Creditors Have Rights, Too

While you have the right to file bankruptcy and stop collections, creditors still have the right to get repaid. During bankruptcy creditors follow a specific procedure to maintain their claim to your money. Depending on the type of bankruptcy you file dictates how and when creditors get paid.

The Priority of Creditors

The bankruptcy court does not see all creditors as equal. Every debt is put in a particular order. Debts that are secured by something, like collateral, are given a more prominent seat at the bankruptcy table. These creditors have something they can seize to fulfill your monetary obligation. In Chapter 7 bankruptcy, the creditor may take the item but they may have to pay you the difference between the value of the item and the amount owed. In Chapter 13, collateral is not typically seized, but you may have the option to return it. If you choose to keep the item and the obligations of the payment plan are not fulfilled, the creditor may proceed against you.

Different Types of Bankruptcy

It is important to note that the type of bankruptcy you file under will determine how creditors respond. The most common types of bankruptcy filed by individuals are Chapter 7 and Chapter 13. Under Chapter 7, you are looking for a discharge of debts, and your assets may get seized to pay back creditors. Under Chapter 13, however, you must come to terms with creditors on a payment plan that can be completed within five years.

While bankruptcy rules are regulated, each state has its own slant. Experienced bankruptcy lawyers in Memphis, TN may help guide you through the standards for your particular state.

 

Thanks to Darrell Castle & Associates, PLLC for their insight into bankruptcy law and creditors.



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