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Discharging debt through bankruptcy

Behind on medical bills? Struggling to keep up with credit card debt? Looking for a way out? Illinoisans seeking debt relief may want to investigate whether filing for Chapter 7 bankruptcy is right for them. Doing so can cause most, if not all, of their debts to be discharged.

What does a Chapter 7 discharge do? It cleans a person's financial slate by removing most of a person's liability for their debts. That, in turn, prevents creditors from trying to collect on the discharged debt. The practical effect is that the discharged debt is effectively wiped away.

Can a discharge be undone? Yes, it can, but only in limited circumstances. For example, if the debtor did not keep or provide adequate financial records, committed perjury during the bankruptcy process, fraudulently hid, moved or destroyed assets, or failed to take other steps required such as completing a financial-management course.

What about secured debts? These debts, in which a creditor extends credit secured by collateral, are a bit different. The secured creditor has additional options that, in some cases, may allow the creditor to seize the collateral even after the debt has been discharged.

To avoid having the property seized, some debtors will reaffirm the debt. So, for example, if the debtor wanted to keep his or her car, that person might reaffirm the debt to the bank that issued the car loan secured by the car as collateral. In exchange, the bank might agree not to try and repossess the car while the debtor makes payments on the debt.

Filing for bankruptcy is an important decision. Illinoisans pondering whether to do so may want to discuss their options with an experienced bankruptcy attorney.

Source: uscourts.gov, "Chapter 7 - Bankruptcy Basics," Accessed Nov. 29, 2016

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