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Bankruptcy Protection: Discharge Of Debts Explained

Author : Terrance Phillip

Bankruptcy protection provides consumers with a way to start over again financially through a complete or partial discharge of debts or a reorganization of debts. For many consumers the most critical consideration is finding out exactly what types of debts can be discharged in a Chapter 7 or Chapter 13 bankruptcy. Individual financial circumstances and state-specific bankruptcy regulations will determine exactly what debts can be discharged and by whom in a bankruptcy, but for the most part these debts include: taxes, mortgages and equity lines of credit, loans, medical bills, and credit cards. A discharge of debts under bankruptcy protection must meet the following guidelines in order to be approved by the bankruptcy trustee and court:

Taxes: One of the most common misconceptions about bankruptcy is that you cannot include federal taxes as part of a discharge of debts. This is simply not true. While it may not be easy to include taxes, it can be done as long as the following stipulations are met:

*The tax debt must be at least 3 years old. This means that the actual taxes in question must have been due at least 36 months ago.

*The return must have been filed in good faith at least 2 years ago.

*The tax assessment must be at least 240 days old regardless of how it occurred.

*The tax assessment must not have been either wholly or partially as a result of fraud or tax evasion.

If these conditions can be met and all other bankruptcy requirements have been satisfied, personal taxes can be included as a discharge of debts via a Chapter 7 bankruptcy.

Credit Cards: Americans are overburdened with credit card debt. This is often a primary reason that many people file for Chapter 7 liquidation or Chapter 13 reorganization bankruptcy. However, as unsecured debt credit cards are actually quite easy to include in a bankruptcy proceeding, provided the charges in question are not fraudulent, no-pay or first-pay defaults, and that cash has not been accessed on the account within the 12 months prior to initial bankruptcy filing.

Mortgages: Filing for bankruptcy will stop all foreclosure efforts until the case is discharged. Some people may be able to keep their home if the equity (if any) they have in it is exempt. However, many filers simply want to be free of an underwater or negatively amortizing mortgage or equity line of credit. In most cases these types of debts can be easily included in a bankruptcy.

Secured Loans: In the case of a secured loan where the securing property has non-exempt equity, the bankruptcy trustee will almost always liquidate the asset in order to satisfy creditors. Therefore, most secured loans can be discharged through a bankruptcy, but in many cases the property will be lost.

Medical Bills: As another type of unsecured financial obligation, medical bills can easily be included in a discharge of debts. This is true provided the filer can prove that they do not have enough (or any) disposable income that will allow them to pay any medical-related debts.

Most other debts fall into one of these categories in one way or another as either unsecured or secured debts with or without equity. Because each individual's situation is so vastly different and state laws vary significantly, consulting with a professional bankruptcy attorney is critical in order to ensure that you are able to maximize on the protections offered by a bankruptcy.

Author's Resource Box

If youre considering bankruptcy, contact a professional Temecula Bankruptcy Attorney now, who can advise you regardless of where you live.

Even if youre not looking for California bankruptcy information, you can get plenty of legal advice at the following web address:

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Tags:   bankruptcy protection, discharge of debts, bankruptcy exemptions,

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Submitted : 2011-06-29    Word Count : 628    Times Viewed: 523