What is Bankruptcy?
Bankruptcy is a legal procedure designed to protect an individual or business that can’t meet its financial obligations and to protect the creditors involved. To begin the process, proper papers must be filed.
There are specific chapters of the federal bankruptcy law. Proceedings under Chapter 7 (known as straight bankruptcy). The court appoints a trustee to distribute assets excluded from bankruptcy protection and cash among the creditors. Exempt assets are assets of the debtor that are protected from Creditors. Proceedings under Chapter 13 (known as wage earner’s bankruptcy) involve the debtor proposing a plan for repaying a portion of the debt in installments from the debtor’s income. Chapter 11 of the federal Bankruptcy Act is generally used by corporations and not by consumer debtors. Its proceedings are expensive and complex. Consumer debtors normally use Chapter 7 or Chapter 13.
Once the bankruptcy proceeding ends, the debtor is discharged on his and her debt. This occurs when the bankruptcy court enters a discharge order in a Chapter 7 case or the debtor completes the Chapter 13 plan. In legal terms, the court has discharged the debtor from the debts. The debtor then starts over again with a clean financial slate, but the record of the bankruptcy will remain on the debtor’s credit record for up to ten years.
Bankruptcy may be the best, or only, solution for reducing financial hardship. Be sure to consult a bankruptcy attorney before deciding to file bankruptcy as a means of solving your economic troubles.