Bankruptcy

The purpose of bankruptcy is to give someone who is hopelessly burdened with debt a chance to start fresh by wiping out their debts. There are several levels of bankruptcy including chapter 7, chapter 11 and chapter 13.

Chapter 7 bankruptcy is often referred to as a liquidation proceeding. The person in debt turns over all of their non-exempt property to a bankruptcy trustee who then converts these items to cash for distribution to the creditors. The person in debt receives a discharge from all debts within four months and this will give them a relatively quick “clean start”.

Chapter 13 bankruptcy is also filed by individuals who wish to pay off their debts in a period of 3-5 years. This allows individuals to maintain non-exempt items they wish to keep. This option is only available to individuals who have enough income to pay off their debts. Each state can also have different rules regarding bankruptcy and bankruptcy protection.

By law once bankruptcy documents are filed creditors must cease contacting the individual. They cannot initiate lawsuits, garnish wages, or phone demanding payments. However, your spouse will not be affected by your bankruptcy if they did not sign any agreement.

The most common reasons for filing bankruptcy include unemployment, medical bills, overextended credit, marital issues, and any other large unexpected expenses. Filing of bankruptcy will stay on your credit report for 10 years, but it becomes less problematic the further in the past it becomes. You might even be a better credit risk after filing bankruptcy than before.

Chapter 11 bankruptcy is primarily used for business debt. However, this chapter allows the debtor to continue normal business activities while reorganizing. A business can consider chapter 11 if their debt exceeds $250000 and a secured debt of $750000 and whose total debt does not exceed $2000000.