What is Bankruptcy?
Personal bankruptcy is a legal declaration made by an individual to indicate that he/she is unable to pay debts and/or meet financial obligations.
Filing for bankruptcy is designed to help a person take control of his or her finances and get a fresh financial start.
Bankruptcy can seem intimidating, but the relief it provides can have a life-changing impact. Get help deciding if bankruptcy is right for you by speaking with a local attorney. Simply fill out the quick case review form below to connect with a lawyer near you today.
Understanding Personal Bankruptcy Protection
When you file for bankruptcy, you are essentially indicating to the court that you want its protection from debt collectors and other creditors.
As long as you adhere to the laws governing the bankruptcy process, you may be able to take advantage of the unique protections bankruptcy offers, including:
- The automatic stay, which usually takes effect as soon as you file your petition with the court. The automatic stay prevents or halts collection actions such as wage garnishment, foreclosure, repossession, and certain lawsuits, which could give you room to breathe and collect your finances.
- Fast discharge of unsecured debts if you file under Chapter 7 of the U.S. Bankruptcy Code. If you qualify for Chapter 7 bankruptcy protection, the court may forgive many of your unsecured debts (such as credit card and medical debts) in only a few months.
- Time to catch up on your debts if you file under Chapter 13 of the U.S. Bankruptcy Code. With the three- to five-year repayment plan, you'll have a chance to catch up on past debts while staying up to date with current debts. If you can't afford to pay all your unsecured debts, the court may discharge some of them at the end of the repayment plan.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is the type of personal bankruptcy that allows filers to discharge many unsecured debts.
Unsecured debts are those debts not linked to any property. A mortgage, for example, is a secured debt, since it's tied to a house. Credit card debt is unsecured, because it's not tied to any physical object – in other words, the credit card company can't "take something back" in exchange for an unpaid bill.
You may have heard Chapter 7 bankruptcy referred to as liquidation. This is because your bankruptcy trustee can liquidate (or convert to cash by selling) any of your assets that are not exempted (excused) by the court. The money from the sales of any property is then used to pay back creditors.
In many cases, though, those who are eligible to file under Chapter 7 have little or no non-exempt property and liquidation doesn't play a major role. Be sure to ask your bankruptcy lawyer about the Chapter 7 Means Test you must pass in order to qualify for Chapter 7 protection.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is sometimes called "reorganization" because it's the type of personal bankruptcy that allows filers to catch up on their debts by restructuring them.
Most people who file under Chapter 13 are able to keep their home and car during the bankruptcy and some even file under Chapter 13 specifically to halt or prevent the foreclosure of their homes.
A typical Chapter 13 case lasts three to five years.
At the end of that time, if the filer has stuck with the repayment plan designed by the court, he or she should be current on debts and ready to start fresh financially.
The Bankruptcy Lawyer
Although it can provide an escape from unmanageable debt, bankruptcy isn't a magical cure-all. Certain types of debts cannot be discharged in bankruptcy, including some student loans, alimony, child support, tax debts and criminal fines.
And, if you don't follow the specifications of bankruptcy law, you risk having your case tossed out by the court.
In order to make sure your bankruptcy case moves forward smoothly, you can work with help from a bankruptcy lawyer practicing near you.
Fill out our free case evaluation form or call us at 866-288-7281. We'll connect you with a sponsoring bankruptcy lawyer for free.
The above summary is not legal advice. Laws may have changed since our last update. For the latest information on bankruptcy laws, speak to a local bankruptcy lawyer in your state.