Bankruptcy refers to those proceedings brought under the United States Bankruptcy Code whereby persons or businesses that cannot pay their debt seek the assistance of the Bankruptcy Courts to get a "fresh start". Under the protection of the bankruptcy laws, debtors (only individuals) may be released ("discharged") from their debts, and businesses may restructure their debts according to a repayment plan that will allow the business to continue to operate.

CHAPTER 7 BANKRUPTCY (LIQUIDATION)

Most individual debtors (i.e. not a corporation or business entity) file Chapter 7 Bankruptcy. However, not all debtors qualify for this type of bankruptcy. In general, there is no limitation on the amount of debt that can be discharged by this bankruptcy, but debtors can only use this option if they have not had a discharge under this chapter in at least six years. Certain types of property may be protected or partial protected ("exempt") depending on the type of property at issue and the value of that property. If there is property that is nonexempt, it must be surrendered to the Court for distribution to creditors. Debtors must also have a relatively small disposable income (i.e. money left over after the payment of necessities). This form of bankruptcy is usually the quickest.

CHAPTER 13 BANKRUPTCY (GOOD FAITH)

Individuals who do not qualify for Chapter 7 Bankruptcy, or who wish to retain nonexempt property (for example, if a debtor wishes to keep a car but the car's value is over the legal exemption), must file under Chapter 13 of the Bankrupcy Code. Under this type of bankruptcy, debtors are limited to owing no more than $269,250 in unsecured debt (i.e. debts that aren't guaranteed by some sort of property...like a credit card) and no more than $807,750 in secured debt (debts guaranteed by property like a mortgage or car loan). Debtors in this type of bankruptcy may pay a portion, or all, of the debts owed via a monthly payment plan that may extend from three to five years. The discharge for this type of bankruptcy is not given until all the payments are made under the payment plan.

PITFALLS

All Bankruptcies will be noted on a debtor's credit report, affecting that persons ability to obtain credit in the future. However, this does not mean that debtors will never be able to obtain credit again.

BANRUPTCY ATTORNEY

Not all debts are dischargeable, and not all people should file bankruptcy. Most calculations with reference to legal exemptions of property, and determinations as to whether a person should file Bankruptcy or not are best left with qualified Attorneys. Also, there are many situations that may occur during bankruptcy that are best dealt with by a Bankruptcy Attorney. Consult an attorney to find out exactly what these situations are and how they can arise.