Bankruptcy 101: The Very Basics

What is Bankruptcy?

Bankruptcy is a legal proceeding afforded to people (or businesses) who are unable to handle a financial crisis. Bankruptcy is made available by federal law so that you can have a fresh start.

How Does Bankruptcy Work?

After an individual qualifies and files a bankruptcy, legal protections are then instilled by the court that protect the filer as they fix their financial situation, and get their life back on track.

Title 11 of the United States Bankruptcy Code offers various forms or “chapters” of relief. The chapters most commonly used by consumers are Chapter 7 (known as the Bankruptcy Reform Act) and Chapter 13.

Chapter 7 Bankruptcy is for persons wishing to be free from debt who cannot afford to pay back a significant portion of their unsecured debt. Chapter 13 is for those who wish to pay a portion of their unsecured debt back, and can afford to do so.

Filing for bankruptcy can have the following impact:

• Relieve you of unsecured debt that you are unable to pay such as medical bills, credit cards, bank loans, business debts, overdraft charges and utility bills. Not all unsecured debt is dischargeable.

• Stop creditor harassment. After you file a bankruptcy petition, the “automatic stay” protection immediately works to prohibit creditors from calling, billing, threatening, suing or taking any measures to collect from you. After you file a Bankruptcy Petition, even secured creditors must get court permission to repossess your car or foreclose on your home.

• Give you the opportunity to catch up on your car and/or mortgage payments.

You are probably wondering: “How does one qualify? How long does the process take? How will bankruptcy affect my credit? Will I lose everything I own?”

An individual contemplating bankruptcy should seek out as much information as possible as the process is complex and will have a major impact on your life. Bankruptcy for many people is the best answer, and can provide immediate relief both personally and financially. There is a lot to consider before decisions are made about filing for bankruptcy and having legal consultation will help in providing you answers to many of those questions.

Bankruptcy is federal law, but individual states have unique exemptions — so it is best to seek out a competent, professional and experienced local bankruptcy attorney who’s legally bound to provide you with the best counsel possible for your unique case.