Definition of a Liquidated Debt
There are several elements that make up the bankruptcy process. Among those elements is the term "liquidated debt," which typically refers to loans of a contractual nature, with clearly established debt and fee amounts. Before filing for bankruptcy, it's a good idea to understand how liquidated debts apply to the process.
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Significance
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Debt has many individuals in predicaments that can feel overwhelming and hopeless. While it's not the answer for everyone, bankruptcy can be a means of starting over for some individuals. Established by the federal government, bankruptcy is a court process that gives individuals and businesses the chance to pay off or cancel debt under protection of the law.
Types
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There are two major types of bankruptcy. Available to individuals and businesses is Chapter 7 bankruptcy, in which the court sells a debtor's assets (those that are not exempt under state law) and uses the proceeds to pay off debts owed. In Chapter 13 bankruptcy, available only to consumers with a limited amount of debt and a reliable source of income, debtors keep their property and the court reorganizes the debt owed to establish a repayment plan over the span of three to five years. A less common type of bankruptcy is Chapter 11, typically used for businesses in financial trouble because the process is usually too expensive and time-consuming for individuals. Typically, these businesses have debt surpassing the limits set in Chapter 13 and with a lot of nonexempt property.
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Definition
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In a bankruptcy, liquidated debt is a debt in which the court can calculate the amount owed easily. For example, mortgages and other loans with an established interest rate and loan amount are liquidated debt. Judgments already established in a court case are also liquidated debt. However, if a court case is still pending when a debtor files bankruptcy, that debt is unliquidated, meaning the court cannot easily calculate the full amount of the debt for bankruptcy proceedings.
Function
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Most often, liquidated debt is a term used in reference to Chapter 13 bankruptcy. Chapter 13 bankruptcy has limitations set in place on the amount of debt the filing consumer can have. As of 2007, the limitations were $336,900 in unsecured liquidated debt and/or $1,010,650 in secured liquidated debt. It's important to note that these limitations specify "liquidated" debt, making it clear these must be debts in which the full amount owed is easy to calculate.
Warning
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Bankruptcy is not for everyone. Before making the decision to file for bankruptcy, it's important to consult an accredited credit counseling service to see if you can maintain a budget that accommodates your living expenses and debt payments on your current income. If bankruptcy still seems to be the best option, hire a bankruptcy attorney to aid in protecting your rights.
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References
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