Many people are hesitant to file Chapter 7 bankruptcy due to some misconceptions about what it actually entails. Although Chapter 7 is also known as a liquidation bankruptcy, many categories of property are exempted from the liquidation, allowing debtors to keep certain items of property. Debtors should still expect that they will lose non-exempted property they may own, however.
Arkansas residents with credit card debts that are older than five years may be able to have any lawsuits that are brought against them by collections agencies dismissed. State law indicates that an action to enforce an obligation to pay a debt must be started within five years of the liability's due date in order to have any validity.
An Arkansas resident who falls significantly behind with a creditor might face an eventual lawsuit in spite of efforts to negotiate repayment plans or alternative settlements. In some cases, legal action might even be threatened on a debt that is no longer valid due to the applicable statute of limitations. A response or lack of response in dealing with creditors and legal action could affect the outcome.
Many people in Arkansas feel a sense of relief after negotiating a settlement with a credit card company or collection service. That sense of relief may be diminished in January, when they receive a 1099-C tax form from the company. The 1099-C will show the amount of the debt that was cancelled by the creditor. What many people in Arkansas and other places do not know is that they must file this form with their federal tax return. The IRS considers cancelled debt as taxable income in most cases.