Richard J. Shurtz, Attorney at Law

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Bankruptcy may be the answer to overwhelming debt load

The most popular type of bankruptcy that is filed in Washington State and elsewhere is a Chapter 7.  This chapter of the federal law provides for discharge of all unsecured debt and, in theory, for liquidation of assets and applying the proceeds to paying creditors. In the vast majority of bankruptcy cases, however, filers do not lose their assets due to state and federal exemption provisions.

One must consult with an experienced consumer bankruptcy attorney to determine whether any assets would be exposed to seizure. In some instances, the individual may want to relinquish to the court certain assets that are the subject of secured loans. If there is an automobile, for example, that is only worth $1,000, but it is secured by a loan with a $12,000 balance, the individual may return the property in the bankruptcy and discharge the loan as though it was an unsecured debt.

The same may apply to a home mortgage. Where there are large arrearages on the loan, the property has depreciated and there is no hope of getting the loan current, a party may want to relinquish the property and discharge the mortgage loan. Alternatively, to keep the home in that situation, the attorney may recommend that the client file a Chapter 13 payment plan instead of a Chapter 7 liquidation case.

With respect to the question of credit score that concerns many people, there is not that great of an impact when a bankruptcy is filed on top of many delinquent and charged-off debts. If that is the case, the person's credit score may go up quickly after the bankruptcy due to the immediate improvement in the debt situation. In any event, there are many methods to use to improve one's credit score after a bankruptcy, and most people in Washington state who file are able to repair the credit damage within a reasonable time after discharge.

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