Some Answers To Basic Bankruptcy Questions

If you're in debt over your head, and your job is not looking too secure, or if you've lost your job, filing bankruptcy can seem like a way to stop creditors, get rid of your debts, and move on with your life. Here is some basic bankruptcy information which can help explain more about how to file for bankruptcy.

Declaring bankruptcy is a way to clear your financial slate, and start fresh. That is the purpose of federal US Bankruptcy laws. There are bankruptcy around the United States, and you would file in a district near you. Usually your involvement with a bankruptcy judge will be fairly limited. For example if you file for chapter 7 bankruptcy, you likely won't have to appear in court and you won't see the bankruptcy judge except in a case where an objection is raised within the case by a creditor or other party.

For chapter 13 debtors, you may only need to appear in front of the bankruptcy judge one time, at a plan confirmation hearing. Normally, the only proceeding where you must appear as a debtor is at the meeting of creditors, and this meeting usually is held at the local office of the U.S. bankruptcy trustee. The debtor attends this meeting so that creditors can question the debtor about debts and property, but note that normally most creditors do not even appear.

There are six basic types of bankruptcy cases in the Bankruptcy Code, but for individuals, the two major types are Chapter 7 and Chapter 13.

Chapter 7, which is called Liquidation, is a type of bankruptcy where the trustee will take over your assets within your estate, sell them for cash, and then distribute the cash to your creditors. In some cases, you have a right to keep certain exempt property and also there are rights of secured creditors who can take back the asset. In nearly all chapter 7 cases for individuals, you will receive a discharge that releases you from any future personal liability for your dischargeable debts. Normally, you will receive a discharge within a few months after your petition is originally filed. With the new bankruptcy laws in the Bankruptcy Abuse Prevention and Consumer Protection Act enacted in 2005 there will be a "means test" which determines whether you qualify for relief under Chapter 7. For example, if your income is higher than certain limits, you may not qualify for bankruptcy under Chapter 7.

Chapter 13 is called Adjustment of Debts of an Individual With Regular Income, and is
designed for individuals who have a regular source of income. Many times, a debtor prefers Chapter 13 to Chapter 7 because it will allow you to keep certain valuable assets, such your home, and because it allows you to create a repayment plan to repay creditors over time, usually three to five years.

Chapter 13 is also available to consumer debtors who don't qualify for chapter 7 based on the means test. There is a confirmation hearing where the bankruptcy court will either approve or disapprove your repayment plan, depending on whether it meets the Bankruptcy Code's requirements. Chapter 13 is different from chapter 7 in that as a chapter 13 debtor you will usually retain possession of the property within the estate, and you continue to make payments to creditors through the trustee, based on your expected income throughout the life of the plan. Unlike chapter 7, you do not get an immediate discharge of your debts. Instead, you must complete the payments as required by the plan before you can receive a discharge. In the mean time, while making payments you are protected from lawsuits, garnishments, and other creditor actions.

Filing personal bankruptcy under Chapter 7 bankruptcy laws or Chapter 13 bankruptcy laws requires detailed information. It's best to seek the help of a bankruptcy lawyer or credit counselor who can provide professional advice and bankruptcy information about all of your options.