What is Bankruptcy?

This is one of the most common bankruptcy questions that people ask. The short answer is, Bankruptcy was created by Congress to give good people a chance to repay or wipe out their debts through a court proceeding and get a fresh start.

When it comes to personal bankruptcy, it comes in two basic flavors, Chapter 7 and Chapter 13. A Chapter 7 bankruptcy is typically used for an individual that has a large amount of unsecured debt such as, credit cards, medical bills, personal loans and payday loans. When an individual files for Chapter 7 bankruptcy, the automatic stay is put in place stopping all collection activity against the debtor. In many cases, the aggressive tactics of the creditors is the reason the debtor ends up filing for bankruptcy. This in itself is a good reason to file for bankruptcy but not the only reason. The main reason why people file for bankruptcy is the bankruptcy discharge. The discharge at the end of a Chapter 7 bankruptcy wipes out all unsecured debt. This means if a debtor doesn’t keep any secured debts, they could possibly end up debt free. Although this is not a guarantee, it should be a goal of everyone that is filing for bankruptcy.

On the other side of the personal bankruptcy fence is Chapter 13. A Chapter 13 bankruptcy is typically used by people that have higher than average incomes and have property they want to protect. A Chapter 13 bankruptcy requires the debtor and their bankruptcy attorney to come up with a feasible repayment plan, to be paid over a 3 to 5 year time frame. In a Chapter 13 bankruptcy, the debtor will be able to get caught up on back payments, allowing them to keep their home.

Both chapters of personal bankruptcy are best served with the help of a bankruptcy attorney. Since the bankruptcy code changed back in 2005 there is a new added complexity that makes it more complicated for the average Joe. When considering the cost of a bankruptcy attorney versus the amount of debt that is being wiped out, a bankruptcy attorney is really quite a value.

Getting answers to those tough bankruptcy questions needs to be thought of before you make a decision when it comes to your financial problems. Finding the answers to help you understand your situation more clearly can help you make an informed decision about filing bankruptcy. Take a minute to call or fill out the form to have a FREE NO OBLIGATION CONSULTATION with a bankruptcy attorney in your area.