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Bankruptcy and debt judgment considerations

When a judgement is pending, an Ohio resident may consider bankruptcy as a way to protect certain assets. Bankruptcy exemptions may allow for those assets to be retained as debts are wiped out. Although property that is not protected may be sold to satisfy some of the debts in the event of a bankruptcy, the limited amounts recovered in such scenarios may prompt a creditor to view a potential bankruptcy as a reason to settle with a debtor in advance of such action.

A debtor may find that bankruptcy is the only means for obtaining relief when debts become excessive. In Chapter 7, unsecured debts may be completely discharged. In Chapter 13, a repayment plan is established over a period of between three and five years. According to reports, the Chapter 7 cases in 2012 included an average in assets of $116,000 per debtor. The median income of this group was $2,764 per month.

Bankruptcy can be an effective and powerful tool in dealing with outstanding debt. However, the long-term implications are significant, and thus a debtor should consider the option carefully. The cost to file can be $1,500 or more, making this an expensive endeavor for many individuals. According to studies, many consumers are limited in available cash and thus unable to afford filing. The long-term impact on credit is another important concern as a Chapter 7 filing remains on a credit report for 10 years.

Settlement talks with a creditor may provide the means to avoid bankruptcy while enabling a debtor to reduce larger debts. Working with a lawyer may prove helpful in negotiating with creditors. Additionally, the lawyer may help in ensuring that proper documentation of agreements is obtained to protect a client from future attempts to collect after a settlement is reached.

Source: FOX Business, "Debt Judgment May Trigger Bankruptcy", Fred O. Williams, May 07, 2014

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