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Advantages of Filing Bankruptcy -
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Discharging
or "wiping out" one's debts is perhaps the biggest benefit
of a bankruptcy filing. A bankruptcy discharge erases a debtor's Tax Relief Filing bankruptcy can sometimes help a debtor from a tax perspective. Some taxes can be discharged, or wiped out, in bankruptcy. These are generally taxes more than 3 years old which meet 4 additional criteria as well. In Chapter 13, taxes can be paid over 5 years with no interest, and the penalties eliminated. In Chapter 11 the taxes need to be paid with interest at the IRS statutory rate, but the payments can be stretched out over 5 years. This is a very complex area and should be studied thoroughly by your bankruptcy attorney and tax counsel before the decision is made to file a case for tax purposes. Getting More Money for Assets In many situations, especially business matters, a debtor may have numerous creditors who are taking collection action against him. Often, there is a real "race to the courthouse" to see who can get to the debtor's assets first. This can result in assets sold off in piecemeal fashion through repossession, UCC-1 lien sale, mortgage foreclosure sale, or sheriff's execution sale. Most of the time, this type of sale does not bring in "top dollar", because of the uncertainty involved and the hesitancy of potential buyers to bid at such sales. Many times, there are no bidders other than the foreclosing or selling party, who will simply put in a credit bid and no new cash. A bankruptcy filing allows these same assets to be sold by the debtor or trustee, over a reasonable period of time, and with ample notice to possible interested parties. This can result in a higher sales price for the assets. Also, business assets can be sold in bulk and as a going concern, which generally will trigger a higher sales price from the right buyer. As a general rule, assets sold at bankruptcy sales do not have issues with title, because, for instance, there is no requirement that such sales comply with state bulk transfer laws. Emotional Relief
Family & Friends Can Be Repaid One consideration is where the debtor has borrowed money from family or friends. The bankruptcy laws require that all of these debts be listed, and that they be treated in the same fashion as other debts. However, once the case is over, there is nothing that prohibits a debtor from voluntarily repaying a debt to a family member, friend, or anyone else for that matter. Financial relationships between family and friends often result in tension and friction which may tend to fray relationships, but they are often unavoidable and a part of everyday life. Consideration should be given to these relationships before a bankruptcy is filed. All Debts In One Location Often, a debtor will have lawsuits in several courts, collection activity, an out-of-court foreclosure, and perhaps cases in tax or family court. A benefit of bankruptcy is that it provides one forum or location for all of the debtor's debts to be handled. Creditors can participate in the case by just filling out a proof of claim form and attaching supporting documents. They do not have to sue the debtor with a full-fledged lawsuit, as is required in state court. This can result in considerable efficiency and savings in terms of time and expense. Possible
Increase of Homestead Exemption Keep Consumer Goods at a Reduced Price In a Chapter 7 case, the individual debtor may end up being able to "buy" back from a secured creditor, like Best Buy, consumer electronics or other goods at a greatly reduced price. Common items include computers and big-screen TVs. Debtor fills out the required Debtor's Statement of Intention, and then "redeems" the item from the lien of the creditor. Debtor pays only the current value of the item. This can result in potential savings of thousands of dollars from what is owed on the contract. The only drawback is that the creditor can insist on a one-time lump-sum cash payment. This is a strategy that may work to the debtor's benefit. Bankruptcy Can Be Relatively Cheap
Bankruptcy
can be a true bargain, where you can "get a lot of bang for your
buck". If a debtor pays $ 2500 in fees and costs to wipe out
$ 100k of credit card debt, it is not a bad investment. In fact, the
$ 2500 probably amounts to one or two months of credit card payments
at the minimum amount due. Often, bankruptcy fees and costs pale in
comparison to fees charged in state court matters. Positive Impact on Credit
Bankruptcy
often has a positive impact on one's credit. This is the case where
a debtor has been late on his payments, or has had collections and
In
other cases, the debtor may have an 800+ FICO score, no lates and
"perfect" credit. At the same time, he may have $ 200-300k
of credit card and other unsecured debt that he simply has been juggling
for years, making minimum payments and borrowing from account to account,
on the proverbial treadmill, getting nowhere in trying to pay it down.
When he files, his credit score will plummet. But, in most instances,
it will be worth it to obtain the debt relief. In many cases, a debtor
does not need credit, because he may already own a home and car with
decent interest rates and monthly payments. The credit factor is one
to consider when evaluating options.
Written by Henry Rendler | ![]() | ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() - Automatic Stay - Avoiding Powers - Lien-stripping - Race to the Courthouse ![]() ![]() - Bankruptcy Estate - Federal - Homestead - Planning ![]() ![]() ![]() ![]() ![]() - Consequences - Criminal Fraud - Prosecution - Reporting Fraud ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() |