Bankruptcy is a legal “liquidation” or “reorganization” process created by the United States Congress through which a debtor can seek relief from mountains of debt. These protections are delivered to individuals or corporations through provisions of chapters 7, 11, 12 and 13 of the U.S. Bankruptcy Code.
A proper filing of a bankruptcy petition under any chapter will generate a court ordered “automatic stay” that prohibits any further action by creditors to collect their debts, thereby giving you a chance to get your financial affairs back in order. There are numerous regulations regarding who can file, what kinds of debts are covered and paid through what priorities, and what assets can and can’t be kept. Child support, spousal support, and most tax obligations are not wiped out by bankruptcy.
Chapter 7 – is a liquidation variety of bankruptcy. It was designed to help either individuals or businesses to eliminate or pay their debts through an orderly liquidation of assets. Individuals are left with certain exempt property to help them make a fresh start.
Chapter 11 – is used primarily by financially struggling business to reorganize their affairs, but is also available to individuals whose debts exceed Chapter 13 limits or who own substantial non-exempt assets, such as real estate.
Chapter 12 – is almost identical to chapter 13, except that 80% of the debt must arise from the operation of a family farm. It allows higher debt ceilings, and ability to eliminate certain types of liens.
Chapter 13 – is known as “wage earner reorganization” because to file you must have a reliable source of income from which to pay some of your debts over the next three to five years. This chapter gives you an option to schedule payment of missed payments on secured debts to avoid repossession or foreclosure.
Bankruptcy should be the last resort.
If you have any viable option short of bankruptcy, take it. While under the protection of bankruptcy, everything you have done in the recent past and every action you take in the near future is under the microscopic scrutiny of the courts.
The court records of the bankruptcy will appear on your credit report for 7-10 years. You will no longer have clean credit. Bankruptcy should be the last resort.
Additional information is located on these pages:
- Getting Credit Counseling – Credit counseling may help some creditors improve their credit scores.
- Boost Your Credit Score – Steps you can take to increase your credit score.
- Bankruptcy Fee – Learn about the fees that are required to file bankruptcy.