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Is Bankruptcy Right for You?

Bankruptcy is a process by which a debtor can obtain relief from debts through the courts. This relief may come in a variety of forms, including full or partial discharge of the debt, or the imposition of a payment program that is consistent with the debtor's financial means. The most common types of individual bankruptcy are called Chapter 7  and Chapter 13 cases.  

At the Morristown, New Jersey-based office of William L. Pegg Jr., I offer clients a personal touch in a nonjudgmental atmosphere. My clients receive zealous representation in federal courts and, after conclusion of the matter,  advice on reestablishing their credit.  Ideally bankruptcy is a very valuable too to enable  individuals to regain control of their economic lives.  

What about getting credit after bankruptcy?  

For  most there is a much better financial future after  bankruptcy.  A popular belief popular belief is that for 7 years post bankruptcy they will not be able to restore their credit.   This is an absolute myth.  Look at it this way:   The bankruptcy will discharge most if not all of your debts and another Chapter 7 bankruptcy prodedure cannot be used for 8 years.  For this reason, provided you have a steady income,  the credit industry will only be too glad to  restore your credit by lending you more money.  Why, because you   are "fresh meat on the table"!  You are largely if not mostly  debt free and gainfully employed.   The trick is to be very careful with your credit usage for example by paying off your credit card charges every month as soon as you are billed.   Not only does this show you to be a good ontime payer but also you will avoid any interest charges which often run well over 20%.   Come to regard a credit card as a convient substitute for carrying cash.   

What is good credit good for.?  

Well, basicly I believe good credit is helpful in four areas: 

  1.  Purchasing insurance.  Insurance companies rate you and frequently will charge you more or deny coverage if you have bad credit.   This is because a credit score is a shorthand way of determining if an individual  is generally caring and responsible.  
  2. Applying to rent a living space.  Most landlords will require a good credit rating under the theory that you will be responsible in taking care of the premises and paying the rent timely. .   
  3. Purchasing or leasing an automobile.  Of course good credit will be a critical factor in determining your financial cost in this type of transaction. 
  4. Qualifying for a  residential mortgage for a purchase or refinance.  Good credit,  especially after the mortgage/housing debacle of the past 12 years, is probably the most important factor mortgage lenders require, whether conventional or FHA. 

What about foreclosure of my residential mortgage?

You have probably heard that the filing of a bankruptcy will stop foreclosure.   If stop means slow down a foreclosure suit  or postphone a foreclosure sale,  then the statement is correct.  All that a Chapter 7 case can do is to discharge  the  personal obligation to pay the mortgage note.   Your residence still owes the money, so to speak as the mortgage lien against it continues as well any any filed suit to foreclose the mortgage.   So the filing of the Chapter 7 is of limited utility if the debtor desires to keep the house.   The filing of a Chapter 13 bankruptcy, however, does allow the debtor to reinstate the mortgage note with the payment of arrearages usually over a period of 60 months.   This basically involves the filing of a feasible plan for payment which includes the immediate  resumption of the normal mortgage payment in addition to the payments on the mortage  arrearages.   One way or another the lender of a secured mortage loan must be paid in full if the property is not to be lost in a foreclosure suit.  

Chapter 7 Bankruptcy

Filing a Chapter 7 bankruptcy petition, sometimes referred to as "straight bankruptcy," has just one simple goal: the complete release from debt. These debts include credit card and medical bills, matters of pending litigation, and judgments.

The Chapter 7 process takes approximately 90  days to complete. Immediately upon filing for Chapter 7,  the automatic stay takes effect, and any sort of collection activity (telephone calls, letters, lawsuits,  levys) being made by your creditors  will immediately cease.   The filing of the bankruptcy petition is made electronically and immediatly upon completion of the bankruptcy petition.  


Chapter 13 Bankruptcy Overview

A Chapter 13 bankruptcy petition is generally filed for two reasons.  First, the income of the debtors may exceed the means test guidelines periodically published regionaly  by the federal government.   This forces the debtor to pay all or a portion of his debts depending on what the application of the means process formula determines is his disposable income.  Second, the debtor may need  to save secured assets, such as his residence, by gaining time to make payment on arrearages which have accrued on his mortgage.   Chapter 13 plans usually run for 60 months of payments to a standing trustee.