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What Is Bankruptcy Protection And Is It Right For Me?

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For many individuals struggling with financial difficulty, filing for bankruptcy protection provides an honorable means to discharge debt and start fresh. In most situations, a bankruptcy petition will put an immediate stop to bill collector harassment, threatening letters, repossessions, foreclosures, and pending lawsuits. Filing for bankruptcy is not a decision to be made lightly or without thorough investigation, but in some cases it is the best choice to begin establishing financial freedom.

How can I determine if bankruptcy is a good choice for me?
The decision to file bankruptcy is largely based on the amount of debt you owe and your ability to make payments to your creditors. Each person's financial circumstances are unique and deciding whether one option is better than another is determined on a case-by-case basis. Current law requires a person contemplating bankruptcy protection to obtain credit counseling from an approved agency prior to filing a case. It is always a good idea for those experiencing financial difficulties to seek assistance from professionals.

Are there different types of bankruptcy?
Bankruptcy consists of several different mechanisms for addressing financial problems. For individuals, the choice often comes down to Chapter 7 or Chapter 13 of the Bankruptcy Code. The idea in a Chapter 7 bankruptcy, also known as a liquidation proceeding, is to wipe out (discharge) your debts in exchange for giving up your property, except for exempt property which the law allows you to keep. (See our article entitled Georgia Bankruptcy Exemptions). In most cases, your home, car and other personal property (i.e. computer, furniture, etc.) will be exempt. Anyone earning below a certain income, even a corporation, can file a Chapter 7 bankruptcy.

For individuals with higher incomes that do not qualify for filing a Chapter 7 bankruptcy, a Chapter 13 bankruptcy allows an individual to pay back his or her creditors over a period of time through a repayment plan while protecting his or her valuable assets. The plan is presented to a bankruptcy judge for approval, and if approved, the plan is administered by a Chapter 13 trustee who will collect and distribute the payments.

How do I determine whether to file under Chapter 7 or Chapter 13?
Your income and expenses will be analyzed using a "Means Test" to determine if you qualify to file a Chapter 7 or if you must file Chapter 13. The Means Test compares your average income for the 6 months prior to filing to the median income for the State. If the income is below the median, then you may choose Chapter 7. If your income exceeds the median, the remaining parts of the means test will be applied to determine if you can file Chapter 7 or if you must file Chapter 13. The decision to file Chapter 7 or Chapter 13 should be carefully considered and discussed with your attorney prior to filing.

Are there any alternatives to bankruptcy?
A person should always investigate other methods of solving his or her financial problems prior to deciding to file for bankruptcy relief. Bankruptcy is typically considered a last resort measure. There are other options available such as credit counseling and negotiating settlements with creditors.

What are the consequences of filing bankruptcy?
There is no clear answer to how bankruptcy will affect your credit. Unfortunately, if you are behind on your bills, your credit may already have been negatively affected. The fact that you've filed a bankruptcy can appear on your credit report for up to ten (10) years. However, since bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills. Provided you accept the challenge afforded by a fresh start, you should be able to build a new, stronger credit history.

Many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain after the bankruptcy is filed. (see our article entitled Georgia Bankruptcy Exemptions). However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after being discharged from bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt. Finally, Federal law prohibits the government and private employers from discriminating against you because you filed a bankruptcy petition or because you failed to pay a dischargeable debt.

If you would like to learn more about the benefits of filing for bankruptcy protection, or to discuss how a bankruptcy petition would affect your situation, please discuss with your attorney before you decide on any option. Because of restrictions on re-filing and because of the increased complexity of the bankruptcy laws, your choice of bankruptcy counsel takes on increased significance.

Steve Mills is the managing partner in the law firm of Mills & Hoopes, LLC, in Lawrenceville, Georgia. For more information on our legal services or your legal needs in areas such as contractual matters, litigation, commercial real estate, immigration, environmental matters, wills, divorce and family matters, personal injury, collections, small claims, landlord tenant or any criminal matters, please visit out website www.millshoopeslaw.com 

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