The only official form of debt forgiveness in the United States is the federal bankruptcy process, according to the book "How to File for Chapter 7 Bankruptcy" by Stephen Elias and others. Without formal debt forgiveness, creditors can legally sue debtors who did not pay their bills on time. Credit-related lawsuits also can lead to wage garnishments.
Ineligible Debts
Some types of debt cannot be forgiven through the bankruptcy process. You must deal directly with the family court on any child support or alimony obligations. In many states failure to pay these can lead to license revocations and even jail sentences. If you owe tax bills incurred less than three years ago, you must work out a repayment plan directly with the taxation agency. Only in rare cases, such as a severe disability or a college committing an act of fraud or negligence, will a bankruptcy judge forgive federally issued student loans.
Basic Pre-Filing Requirements
Before filing bankruptcy, you must complete a credit counseling session with a federally approved agency, notes the book "How to File for Chapter 7 Bankruptcy." You also must complete another financial counseling session before a judge will finalize your bankruptcy request. If you did not file your last four expected federal and state income tax returns, you must do so before filing bankruptcy.
Chapter 7 Information
Chapter 7 bankruptcy eliminates many pre-existing debts, but the consumer risks losing some of his assets to offset creditor losses. Generally, a debtor must earn less than his state's annual median income level or successfully petition his local bankruptcy court to file Chapter 7. As of 2011, the yearly median income figure for a single Georgia resident, for example, was $50,664, while the annual median income level for a family of four in Arkansas was $54,401, according to the U.S. Trustee Program. While filing Chapter 7 eliminates many debts, it does not cover future debts, and filing Chapter 7 bankruptcy will damage a consumer's credit rating for 10 years.
Additional Bankruptcy Options
Chapters 11, 12 and 13 bankruptcies offer partial debt repayment plans for struggling people, notes the United States Bankruptcy Court of the Western District of Michigan. Chapter 13 reduces personal debts into a partial repayment plan that takes three to five years to complete. Self-employed people or business owners can create a similar repayment plan for business and personal obligations under Chapter 11. Family farmers wishing to restructure their debts while keeping their assets can request a Chapter 12 bankruptcy. During all these plans, a consumer cannot obtain new credit without a judge's permission.
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