What Happens After You File for Bankruptcy?

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When you file for bankruptcy don’t expect it to take away all of your debt — credit-card lobbyists have fought long and hard for 

Debt forgiveness became nearly possible to attain after the 2005 enactment of stricter bankruptcy laws in response to about a decade of lobbying by credit card companies.

Depending on which type of bankruptcy you file for, and where you live, you will have to go before a judge who will decide which creditors get paid when.

After You File for Bankruptcy

The judge will have accurate information about your income already supplied by the IRS, so keep that in mind before you attempt to fudge why you might be short on cash.
You will also be required to attend credit counseling courses that will encourage you to work with the judge on coming up with a repayment plan and ways to source more funds to make the payments the judge will insist on your paying.
In consultation with you, the judge will prioritize your paying creditors who have liens against your property — along with any other kind of secured credit.
In the case of a business, bondholders come next in line. In personal bankruptcies, child support or alimony payments also receive priority treatment — apparently, you used to be able to get some of these dismissed, but no longer.

What You Can Negotiate

After the aforementioned types of priorities, you might have some room to negotiate the timing of the rest of the debts. The judge might also advise you to sell assets to help you reduce your indebtedness — in the case of a business, a judge might suggest you switch your filing to a Chapter 7, or total liquidation.
It’s actually harder for individuals to file for Chapter 7 under the stricter bankruptcy laws, as judges are more inclined to steer people to file for a Chapter 13 debt restructuring.
That said, it’s still a good idea to sell assets if you don’t have the ability to drum up more income right away — even though the decision can seem like choosing the lesser of two evils.
While you have a pending bankruptcy filing, it may crimp the amount of money you can fetch from selling things. Potential buyers know they can negotiate a lower price when a seller is in financial trouble, and they will push for advantage.

Your Creditors Have More Power Than You Do

Adding to the pressure to take whatever suitors may offer you for your assets: Creditors have the ability to take additional actions against you while you have a pending bankruptcy filing.  You no longer have protection from repossessions, foreclosures, or even additional lien filings, all of which can make it harder for you to evade payment of what you owe.
If you’re behind on your mortgage, consider doing a short sale to prevent your home from being seized.
Speaking of negotiating alternatives, you might be better off trying to negotiate repayment schedules with each of your creditors yourself, which would save you the hassle of going to bankruptcy court and having a bankruptcy remain on your credit reports for seven years.
Think carefully about this prospect before filing for bankruptcy — if you can find other ways to solve your debt problems, you will be better off in the long run.
Readers, have you contemplated filing for bankruptcy?

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