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How and why people file for bankruptcy

Updated on July 2, 2009

There are various reasons why a person may file for bankruptcy. These include stopping foreclosure on your home. Although this does not exempt you from paying the mortgage, it gives you a structured plan to repay the mortgage arrears. Filing for bankruptcy also ensures that your house utilities such as electricity are not terminated due to the imminent foreclosure. Bankruptcy can also eliminate your legal obligations to pay most of your debts through a process referred to as discharge of debts thereby giving you a fresh start.

Another major reason for filing bankruptcy is loss of employment. This means the family cannot pay its bills or is left without insurance protection that was provided by the employer. In case of an accident or a recently discovered disease that leaves you with high medical bills, bankruptcy can greatly reduce or even eliminate the bills. It also protects your property from being repossessed by your creditors. In this case, all your late payments are combined in your bankruptcy plan then a trustee is appointed whom you will pay and who in turn will pay the creditor. It also stops harassment from creditors who result to unethical practices such as constantly calling and other abusive behaviors by putting their demands on hold. It also helps you stop claims from financers who try to collect more money from you than you actually owe them. For people with huge student loans, bankruptcy helps consolidate the loans and provide them with a way of paying reasonable monthly installments. All these are major reasons starting the bankruptcy process.

When you want to declare yourself bankrupt, you start the process by filing the official bankruptcy forms. There are various methods of filing for bankruptcy therefore select one that saves you on legal expenses. There are three commonly used methods i.e. the do-it-yourself or “pro-se” method, the hybrid method and maintaining a bankruptcy lawyer fulltime.

The ‘pro-se’ method requires you have knowledge on bankruptcy records since you do not get the counsel of a lawyer. This method is touted as the cheapest.

The hybrid method involves hiring a lawyer to prepare your case and file the papers. The lawyer is paid a flat fee. Once the case is filed, you are on your own. However, there are those law firms that provide you with a short course on how to handle this part of the process. This method is most commonly used.

The simplest and probably the safest method is to maintain a bankruptcy lawyer through the entire process. The lawyer handles the evaluation and preparation of your case. He also deals with any tough issue that may arise during the creditors meeting. The major setback of this method is that it costs more and therefore you need to look for a cheap lawyer.

When filing bankruptcy, ensure all your debts are disclosed and listed on the petition to avoid surprises.


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