The following is a guest post.

If you are struggling to pay your bills, you may wish to file for bankruptcy protection. This allows you to work out a new payment plan with your creditors or even have your debts completely wiped away. How does bankruptcy work, and who could benefit the most from bankruptcy?

Bankruptcy Stops Collection Efforts

The best reason why you would want to file for bankruptcy is to give yourself some breathing room until you can figure out what to do about your debt. When you file, your creditors are required to cease all phone calls and letters to you regarding your debt. Instead, they must talk to the trustee in your case or to your bankruptcy attorney. For many people, not facing the stress of talking to creditors on a regular basis can be all that they need to get back on track.

Force Creditors to Accept Your Financial Situation 

Creditors may not be willing to help you create a new payment plan or otherwise help you deal with your overdue debt. However, going to bankruptcy court forces your creditors to acknowledge that you are in financial trouble and cannot keep paying your bills as you agreed to. In most cases, you will be able to restructure your debt at a lower interest rate to lower your monthly payment and help you pay down your principal balance faster.

Keep Your Assets 

You can keep more of your assets if you file for bankruptcy. If you are facing foreclosure, you can keep your home while your case is being heard. While your lender could continue foreclosure proceedings after the case has been heard, it does buy you more time until you can negotiate a new payment plan or have overdue debt rolled into future payments. Other assets that cannot be liquidated include retirement accounts such as a 401k or an IRA.

What is the Process for Filing Bankruptcy? 

Filing for bankruptcy is a fairly easy process. The first step is to find an attorney who will help you with your case. The second step is to file for protection and pay the fee to do so. After your petition has been filed, your creditors will be notified and a trustee will be appointed for your case. A hearing will be called to allow creditors and other interested parties to go through your financial records and ask you questions. In this meeting, you must answer the questions honestly. If you do not, you could face criminal charges and have your bankruptcy petition denied.

A Judge May Require that You Get Counseling First

It is possible that a judge may not approve your case until you have gone to credit counseling or have taken other reasonable actions to resolve your debt. If this happens, the judge may continue the case until another hearing can be held. At that point, a final decision will be made as to whether or not you are eligible for bankruptcy.

Knowing how bankruptcy works and the benefits to filing could help you determine if it is right for you. The best thing to do is to consult an attorney who can help you figure out whether or not filing is the best decision to help you out of your financial situation.

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