Bankruptcy is a legal proceeding, usually started by a debtor (a person that owes money to creditors), to help that debtor get a Fresh Start financially.
Once a debtor files a Bankruptcy, all creditors must stop collection activities, including phone calls and letters, and the creditors now must communicate through the Bankruptcy Case. This is called the “Automatic Stay,” and it provides a debtor with much stress relief as soon as they file their Bankruptcy.
Bankruptcy Law is Federal Law
Bankruptcy Law in the United States is contained in Title 11 of the United States Code. The Bankruptcy Laws are broken down into different Chapters, which is why you always hear people talking about Chapter 7 Bankruptcy or Chapter 13 Bankruptcy.
Chapter 7 Bankruptcy – Debts Wiped Away Quickly
Chapter 7 Bankruptcy is the most common kind of Bankruptcy. It allows a debtor to quickly clear away debts without paying them, and receive a Fresh Start in about 3-4 months. Most people filing Chapter 7 do not lose any property, because Exemption Laws protect all of their assets. But if a debtor has non-exempt property (for example a yacht or vacation home), they may lose it.
Chapter 13 Bankruptcy – Payment Plan
Chapter 13 Bankruptcy is usually filed by a debtor to stop a pending foreclosure on their home or to stop a pending repossession of their car. In a Chapter 13, the debtor sets up a 3-5 year payment plan to catch up on their house and/or car payments, and usually to pay back part of their unsecured debts. During the Chapter 13, creditors are not allowed to harass you or collect against you.
How Do You File for Bankruptcy? Get a Bankruptcy Attorney
This website recommends you use a Bankruptcy Attorney to file for Bankruptcy. A good Bankruptcy Lawyer will listen to your particular situation, and strategically decide when you should file, what Chapter you should file, and what exemption laws you should use. This attorney will also help you make any pre-bankruptcy filing plans (Bankruptcy planning).
The Bankruptcy Process
In its simplest form, the Bankruptcy Process consists of filing a Bankruptcy Petition and Schedules with the proper Bankruptcy Court, going to your “Meeting of Creditors,” also called a “341 Meeting,” signing any necessary “Reaffirmation Agreements,” and receiving your “Discharge Order.”
Life After Bankruptcy – Rebuild Your Credit
Your life after Bankruptcy is usually much better than it was before a Bankruptcy. Your stress is gone, because creditors have left you alone. For most people, their credit score begins to rise within a few months of completing their Bankruptcy. New creditors realize that you are now debt free, AND that you cannot file Bankruptcy for another 8 years, so they are now willing to extend you credit and lend to you.
Enforce Your Bankruptcy – Stay and Discharge Violations
After you receive your discharge order, discharged creditors have 60 days to remove themselves from your credit report. If they do not, you can sue them for violating your discharge order (called a “Discharge Violation”). You can also sue creditors for a “Stay Violation,” which is when they harass you after your case has been filed.
Avoid Bad Debt and Get New Financial Habits
As you rebuild your financial life, you will want to change your habits so you do not fall into debt again. Live below your means. Try to increase your income and save money for your future. Avoid all kinds of unsecured debt. This means that you should not carry any credit card debt, lines of credit, or payday loans. Do what it takes to buy things with cash instead of credit.