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Understanding bankruptcy and its benefits

Many people think filing bankruptcy is reprehensible, but the truth is that it is a legal process that can help individuals or couples who are going under financial strain to get back on track with a new start in life.

If you are tired of collection calls and being harassed by debt collectors, you might want to consider it. Filing bankruptcy is a legal way to stop creditors, and it works immediately. Once you have filed for bankruptcy, creditors are no longer allowed to contact you.

There are two kinds of bankruptcies that individuals or couples usually file: Chapter 7 or Chapter 13. Which one you file depends mostly on the amount of income and assets you have.

Chapter 7 bankruptcy, also known as a "straight" bankruptcy, allows a trustee to liquidate any valuable assets you might have to pay debtors, such as vehicles or property. Most unsecured debts are discharged, often leaving you debt-free when all is said and done. There are items that can be exempt from liquidation, such as your auto or home if you chose to keep them and continue paying the mortgage or loan payments. You would also have to catch up any past due payments and then sign a Reaffirmation Agreement for each.

Chapter 13 bankruptcy is a reorganization of your current debts. When you file Chapter 13, a repayment plan is structured to pay your debts off in a three to five-year plan. The amount you pay monthly is based on your disposable income and determined by a Wisconsin Means Test. (You must have a regular source of income to file Chapter 13; if you do not have any income, you would have to file Chapter 7.)

Chapter 13 is a good option if you are about to lose your home to foreclosure. It will stop the foreclosure process in its tracks. You will then be allowed to catch payments up over time and reinstate your original mortgage agreement.

So if you are in a financial disaster, don't write off the idea of filing bankruptcy. It can be a great option to get back on your feet. The reduction of stress that comes along with getting out from under the pressure of creditors and debt makes it all worth it. A bankruptcy attorney can provide more details and advise you of the best options for your situation.

Source: Wisconsin Bankruptcy Law, "Bankruptcy – Wisconsin frequently asked questions," accessed Dec. 08, 2017

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