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Bankruptcy: The Legal Way of Overcoming Debts

It is easy for one in a crushing debt crisis to have his or her self-esteem and enthusiasm in life be overcome by worry and uncertainty. This is one situation millions of honest and hard-working individuals in the U.S. who have problems paying their debts due to loss of employment, sickness, disability or death in the family, are experiencing. Worrying, however, will never any solve debt problems; however, a legal solution called Bankruptcy will.

Millions of individuals file personal bankruptcy every year. Filing personal bankruptcy is a right of every American, a right stipulated in the Bankruptcy Code, which the US Congress passed in 1978. This law is aimed at helping individuals, families running a business and business firms find ways to pay their debts and so regain control of their finances. There are different chapters in the Bankruptcy code, each designed to deal with the specific needs and financial situation of debtors.

Offering debtors an affordable solution to paying debts is not the only benefit a person going through bankruptcy is assured of; he or she will also avail of other benefits, like cessation of the harassing tactics employed by collection firms and freedom from dischargeable debts.

One chapter in the bankruptcy code, which is also the chapter most commonly applied for, is Chapter 7. Chapter 7 of the bankruptcy code, also called liquidation bankruptcy, requires debtors to surrender all their “non-exempt” properties for liquidation and cease operation of their business if they have one. Non-exempt properties usually include a vacation home, a second house, expensive musical instruments (but only if the debtor is not a musician by trade), cash, bonds, stocks and other forms of investment. Exempt properties, on the other hand, include items which are considered necessary for working and living.

A trustee appointed by the court will take charge in the liquidation of a debtor’s non-exempt properties and use the amount earned to pay all of the debtor’s non-dischargeable debts, which include child support, alimony, court fees, government-imposed penalties, debts resulting from wrongful death or personal injury, student loans (unless debtor would suffer “undue hardship” if he/she were to keep paying these), and taxes (federal, state, and local) that are no more than 3 years old since these first became due. If the amount of liquidated properties is more than enough to pay all non-dischargeable debts, the remaining amount will be returned to the debtor. Otherwise, creditors will have to accept the (legally determined) amount they are paid, even if this falls short of the actual amount owed to them. Besides this, they should also follow a decision made by the court which is to forgive any balance from the debt and to stop any further collection of payment, or suffer severe penalties under federal law.

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