The Legal Effects of a Bankruptcy Filing
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Legal Effects of Bankruptcy

Most people file bankruptcy in order to solve their debt problems. As a result, the legal effects of bankruptcy are often seen as less important than potential financial relief.

Nevertheless, bankruptcy does have some long-lasting legal effects. Bankruptcy may affect property rights, home or car ownership, and the legal nature of debts held by more than one person.

Important Legal Aspects of Bankruptcy

Bankruptcy has a broad range of legal effects depending on each person's unique circumstances, so not every single effect will be listed here. However, there are a few key areas in which bankruptcy may have an effect on a filer's legal rights. These include:

  • Property. In a Chapter Seven case, the trustee may be able to liquidate some of the filer's non-exempt property. This happens in exchange for debt relief. Chapter 13 bankruptcy, however, often allows filers to keep all of their property.
  • Home ownership. Depending on which chapter you file, bankruptcy may stop home foreclosure proceedings. So, a possible legal effect of bankruptcy is the preservation of home ownership.
  • Collection lawsuits. If a debt collector has filed a collection lawsuit against a filer, bankruptcy's automatic stay can temporarily stop that lawsuit. The debt relief potentially granted by bankruptcy may then eliminate the grounds for the lawsuit altogether.

Beyond these impacts, bankruptcy does not usually affect any fundamental rights of a filer, such as the ability to vote, pursue new loans, and other basic rights.

Other Legal Effects of Bankruptcy

Due to the many differences between state bankruptcy laws, the legal effects of bankruptcy may have some variation by state.

For example, the types of property which are exempt from bankruptcy, and the value up to which may be protected by creditors, are determined by each state.

As a result of these differences, many people who file bankruptcy consult with attorneys in their area before making key decisions.

For more information on your local laws, contact a local bankruptcy lawyer today.


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