What is Bankruptcy?

Bankruptcy is a legal proceeding for individuals or business who are unable to pay their outstanding debts. A judge and court trustee review the assets and liabilities and decide whether to discharge or reorganize those debts. Bankruptcy laws are intended to give people a second chance.

When is Bankruptcy Beneficial?

Bankruptcy can be beneficial for people who have high debts and no monies available to repay now or in the near future. For some, the filing effort and credit impact outweigh the benefits. If you have debt from sources such as medical bills, credit cards, mortgages, or personal loans then you may qualify.

Bankruptcy Laws

Generally, federal law governs bankruptcy proceedings, although each state has their own specific rules for filing for bankruptcy. There are two common types of bankruptcies available for individuals: Chapter 7 and Chapter 13. Both types of filings allow individuals to protect part of their assets, commonly referred to as “exempt property.” Generally, exempt property is protected from creditors.

Chapter 7

In Chapter 7 bankruptcy proceedings, a person usually lists the specific items of property that they wish to exempt. All of their other property is then liquidated or sold to pay off their debts. Although Chapter 7 bankruptcies are relatively simple, they are reported on a person’s credit report for the next 10 years.

Chapter 13

By contrast, in a Chapter 13 bankruptcy, an individual must reorganize their property and submit a plan to pay off their debts in 3-5 years. To qualify for a Chapter 13 bankruptcy, an individual must generally have sufficient disposable income to fund a repayment plan. However, a Chapter 13 bankruptcy only remains on a person’s credit report for a maximum of 7 years.

Get Legal Help for Your Bankruptcy Case Today

If you are wondering whether you should file for bankruptcy, be sure to obtain the legal representation you need to make informed decisions about your financial future. Even if you have large amounts of debt, a bankruptcy filing may help you get back on your feet.

For further information about the bankruptcy process and how it could benefit you, start your search for a local bankruptcy lawyer today.