Bankruptcy provides you with a fresh start, but what exactly does that mean?
The main reason people file for bankruptcy is because of unmanageable debt that is causing emotional stress from harassing creditor phone calls, threats of lawsuits or judgments along with impending wage garnishments, bank levies and property seizures.
You may reached this low point from loss of employment, underemployment, medical bills from a catastrophic illness or accident, or failure to control credit card spending. Divorce and loss of a second income also is a major contributing factor.
What is a Fresh Start?
A fresh start means that your unsustainable, unsecured debt has been discharged in bankruptcy; secured creditors have either had their collateral returned to them or their debt reaffirmed; and you are able to free yourself from creditor harassment and loss of funds from money judgments. In most cases, a bankruptcy will allow you to keep most if not all of your property.
Does a Chapter 13 Offer a Fresh Start?
A Chapter 13 differs from a Chapter 7 liquidation in that it is a reorganization of your debts and a repayment process whereby your creditors are paid off within a 36 or 60-month period with priority and secured creditors paid first.
In a Chapter 13, although you are paying back your creditors, you are doing so at a reduced rate. You no longer have to contend with harassing phone calls or threats of court action or collection. Distressed homeowners facing foreclosure can continue paying their mortgage loans and making up their arrearages over the duration of the repayment plan. Also, second and third mortgages can be discharged as unsecured debt at the expiration of the repayment plan.
What Happens After Discharge?
When you receive a Notice of Discharge from the bankruptcy court, you have no further legal obligation to pay any of the creditors whose debts have been discharged. While your slate has been wiped clean, it is now time to meet with a financial counselor or to take the time to research how to avoid accumulating unsustainable debt in the future and to live within your means.