Ways & How

How to Discharge Debt

How to Discharge Debt

In America, many people are suffering from heavy debt. Most of them have been wondering how to discharge debt properly. The light in every financial crisis is the fact that the American government has legal options that can help consumers to resolve their monetary obligations easily. Although the procedure on discharging debt is risky, since it can lead to the seizure of some assets, it is still a wise move in addressing what would otherwise be an annoying financial problem. Let us identify basic concepts. Unsecured debt refers to a debt that has no collateral at all, such as a credit card balance, while secured debt is a debt secured by a certain property, such as a house that secures a mortgage debt. In discharging unsecured debt, either of the two kinds of personal bankruptcy can help a lot. These options include Chapter 13, in which you’ll pay the amount owed for a specific number of years, and Chapter 7, which means debt liquidation. Also, you can opt to just allow your debt to expire based on the statute of limitations of the state where the debt was incurred. Let’s see the process.

  1. Gather all important documents. These are paystubs, credit card records, medical bills, mortgage loans, personal loans or any loans for that matter, plus your income tax returns (ITR) covering the immediately preceding five years. All these are needed in creating a personal bankruptcy schedule. Your lawyer will also look at these papers.

  2. See a bankruptcy lawyer. Ask a few people about their past experiences with their bankruptcy attorney. This will help you find a lawyer whom you can trust and who’ll understand your situation. Present to him/her the complete list of your sources of income, including all debts of course. After all, it is your lawyer who’ll file the bankruptcy petition to the U.S. Bankruptcy Court.

  3. Review your case with your lawyer. Both of you will sort out the things to be done on your petition. Depending on the exemption laws imposed in your state, you can retain some of your properties. Generally, exemption laws determine which properties cannot be claimed by the creditors. As you evaluate your financial situation and before proceeding into anything, try to find out if you really have to enter into foreclosure to discharge debt.

  4. Meet your creditors. Call or send them a formal letter right after your debts become due. Explain your current situation and give them a rough estimate on how long you will be experiencing the financial crisis.  Most importantly, ask them for the possible revision of the terms of repayment. There are creditors who are willing to enter into renegotiation of repayment schedules.

  5. Attend a debt management program (DMP). Enrolling into this program presumes that you’ll repay the debt amount, only that your means won’t allow you to do so in the meantime. The DMP will call your creditors and arrange for a better repayment plan. When everything is arranged, you can start paying the DMP every month and the amount will be distributed to your creditors based on the repayment terms previously agreed upon.

  6. File Chapter 7 or Chapter 13 petition in your state. Either of the two is a very extreme move. Declaring bankruptcy presumes that you are totally incapable of making good on your debts in the time to come. Talk it over with your lawyer. On one hand, Chapter 7 will allow you to liquidate your properties in order to pay off your debts. This is the very usual option for many individuals in discharging unsecured debts without necessarily losing their house and car. The effect of Chapter 7 is to discharge your debts as soon as possible so that no foreclosure proceeding may be taken against your properties.

    On the other hand, in your attempt to reduce the total amount of your debts a repayment or bankruptcy plan is needed based on Chapter 13. Said plan will allow you to pay off your debts for a specific number of years.

  7. Have the bankruptcy plan approved. During the confirmation hearing, you and your lawyer must be around. That is the time when both parties will see the propriety of approving the plan. The plan will be reviewed by a trustee who will, thereafter, submit to the bankruptcy court his/her recommendation for a final decision.

  8. Wait for the Order of Discharge. There are two possible orders you can get - discharge or dismissal. The first one is what you want; it implies that your debt discharge is successful, including those listed in the bankruptcy plan. Dismissal means your case is unsuccessful and so, you still have to pay off your debts.

Once your debts are discharged, your creditors can no longer compel you to pay. The creditors cannot institute legal action to collect the amount. Needless to say, the best way to be debt-free is not to contract debts at all. Make it a habit to live within your means and you will never even need these steps on how to discharge debt. Minimize, if not stop, your credit card expenses. Make it a practice to buy only your needs less than mere wants.


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