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How can bankruptcy help the average wage earner?

Filing for bankruptcy is often touted as a miracle cure for financial troubles. Many people in Bradley County wonder how a complicated federal statute can repair years of overspending and poor financial decision making. The answer is two-fold: bankruptcy is not a miracle, but in the right circumstances, it can provide additional time to negotiate with creditors and perhaps reduce the amount of outstanding debt.

The most powerful weapon in the bankruptcy quiver is the automatic stay provided by Sec. 362 of the bankruptcy code. The automatic is a court order that is issued automatically by the court where the bankruptcy petition is filed. The stay prohibits any further attempts to collect debts that were due as of the date of filing of the petition.

This prohibition applies to many collection proceedings, but most importantly, it applies to home foreclosures. When the stay issues, all foreclosure proceedings must stop. Whether the foreclosure can continue at a later date will be worked out in the bankruptcy proceeding. The stay also prevents credit card companies from attempting to collect amount that are due to them. The stay is binding on all creditors that have been listed in the petition.

Under Chapter 13, a wage earner can file a plan of reorganization that specifies how much he or she will pay on each debt during a specified period, which is usually five years. This extra time gives many debtors enough space to negotiate a repayment plan with most creditors and to apply earnings to the required payments. If the debtor fulfills his or her obligations under the plan, most debts will either be paid off or discharged by the court by the end of the reorganization period.

Anyone who wonders whether bankruptcy may be useful may wish to talk to an experienced bankruptcy attorney. A knowledgeable lawyer can evaluate a person's financial situation, explain the various remedies available under Chapters 7, 11 and 13 and help devise a feasible and helpful plan for retiring debts.

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